Regulators must show their teeth
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.