Accounting scandals cost SA foreign investment – Manuel

The fall from grace of the South African accounting and auditing industry following the emergence of the state capture and Steinhoff scandals is costing South Africa desperately needed foreign investment.

This was one of the key messages from Trevor Manuel, former minister of finance minister, chairman of Old Mutual and special envoy deployed by president Cyril Ramaphosa to source $100 billion of international investments for South Africa, during a panel discussion hosted by the South African Institute of Chartered Accountants (Saica).

“The president has given me a job to moonlight to raise billions. We need to speak to people outside the country and convince them to invest. They say they cannot invest here because we cannot believe what we read (in audited financial statements).”

Geoffrey Qhena, CEO of the IDC and a CA, says the IDC relies on audit reports to make investment decisions and that it is critical that these statements must be accurate. “But it is not only the auditors (who should be held accountable) but the CAs who are preparing the financial statements. What is it that they are taking responsibility for?”

Several other panel participants also criticised the lack of proactive and decisive action by accounting bodies such as Saica and the Independent Regulatory Board for Auditors (Irba) after the state capture and Steinhoff scandals broke.

Prof. Linda de Beer, the chairperson of the JSE Financial Reporting Investigations Panel, a member of the King Committee on Corporate Governance and a former Saica executive, was especially critical.

During the panel discussion and during an earlier keynote address she advocated significant governance changes at Saica to allow for a more proactive and assertive oversight function to protect the integrity of the profession.

“We saw it at the start of what happened at KPMG and in a way, we have seen it with Saica. We are so politically correct that we either say nothing or tone down how bad it is. Be honest and open and transparent and say we have a problem and we don’t know yet how big the problem is. But denial is actually insulting for people out there.”

De Beer also called on Saica to enable a mechanism to suspend members who bring the profession into disrepute, even before they are found guilty in disciplinary or other legal processes. “You (Saica) can create a mechanism to allow you to suspend a member due to negative news or allegations in the public. “You must tell the member that he or she may not be guilty, but as long as the legal processes are ongoing, we have no choice but to suspend you.”

Tsakani Ratsela, deputy auditor-general, said in response to a question that she is troubled by the notion that she shares a CA qualification with former Steinhoff CEO Markus Jooste as he brought the profession into disrepute. “I am troubled. We employ 600 full-time CAs and we rely upon the services of many CAs of private audit firms. So, we have a direct interest in an audit profession and qualifications that remain sound and hold dear the confidence the public has in it.”

Manuel added that in addition to individuals such as Jooste and former Transnet and Eskom CFO Anoj Singh, “there is a long list of people, some of whom have been convicted and sentenced, for crimes apart from malfeasance itself, and retained their membership while in prison. There is something wrong with an institution that allows life membership because it is incapable of acting against those members.”

Manuel ascribed the fall from grace of the accounting standards to hubris after the South African auditing industry was the top-ranked industry in the world according to the WEF World Competitiveness report.

“Everybody (in the accounting and auditing industry) was very comfortable. We are number one in the world. We are untouchable. When we fell from there, we fell to the bottom.”

Manuel also referred to the conduct of the audit firm Nkonki. “For me, as an outsider to the profession, what happened with the sale of Nkonki is actually shameful. The fact that an individual who is funded by a corrupt entity, who is then funded by an even more corrupt family can purchase an audit company, and then through the firm undertake audits and suggests to investors that it is all okay, suggests there is something exceedingly rotten.”

“We have to deal with issues for what they are. We have to call them out and take a stand for what has happened. I think Nkonki is a very bad example because many of us related to the firm with a lot of pride when it was established.”