One of the most vexing questions occupying the citizens of the United States these days is the question of how the transition from the administration of Donald Trump to Joe Biden will be executed. The unique vagaries of American administrations is that the gap between the elections and inaugurations is a lengthy hiatus during which the incoming president tries to assemble a team of sorts. At the same time, the executive powers still rest in the hands of the outgoing president. This dichotomy in power relations, is usually managed within the parameters of political protocol that is premised on some level of respect across the two administrations.
In reality, the main task that seems to preoccupy the mind of the outgoing president seems to be the question of who to pardon as a last show of executive power. For Bill Clinton, Patty Hearst and the fugitive Marc Rich were the prominent beneficiaries of that last act. For Barack Obama, the violator of the Espionage Act — Chelsea Manning, benefited from the process. Notably, all these precedents and protocols predated the arrival of Donald Trump into high office. Last week, Trump lost the US presidential election to Joe Biden. Since then — just like over the preceding four years — Trump has shown a disdain of political decorum and protocol not witnessed anywhere in the world. In refusing to accept defeat at the hands of Sleepy Joe, Trump has unleashed an arsenal of legal challenges and Tweets aimed at discrediting the process and its outcomes. The traditional concession call — where the projected loser graciously congratulates the projected winner — has not been forthcoming and isn’t expected to materialise.
Such an awkward transition is something that institutions of stature need to avoid. In South Africa, one of the most important institutions supporting democracy is the Office of the Auditor General. Its leader for the past seven years, Kimi Makwetu — who tragically passed away this week — was the one public sector leader who mastered the art of managing transitions. He took over from Terrence Nombembe and managed to guide the office through the turbulent waters of the state capture age. As his own term neared an end, his successor — Tsakani Maluleke — was inheriting an institution that is lauded as a beacon of light in the public sector, thanks to the efforts of Makwetu.
The office of the auditor general is unique in that it is the one public sector institution that is able to remain on par with the best practices in its sector and oftentimes leads its private sector counterparts in adapting to challenges and changes.
In this context, the Independent Regulatory Board for Auditors (Irba) — although a state institution on its own — has a focus on the private sector market in auditing. The current pathways of the two institutions, however, offer contrasting tales of leadership and transition management. The office of the auditor general — having long identified the glaring gaps between public expectations and actual practices — took on the task of amending its enabling instrument — the Public Audit Act — to respond to the challenges of modern times. As a result, the amendments have given it greater latitude to ensure accountability in the custody of public finances.
At the same time, the Irba undertook a process of amending its enabling instrument — the Auditing Profession Act — to similarly narrow the gap between social expectations and actual powers.
Its first big task — the adoption of mandatory audit firm rotation, was a war of attrition that pitted it against the big audit firms and remains tentative to this day as disaffected stakeholders are pursuing legal avenues to reverse the decision. The next challenge related to the overhaul of various provisions of the Act relating to the powers to hold errant auditors accountable. Such proposals, including the powers to subpoena documents and changing the way board members are appointed, were recently debated in parliament.
As expected, the profession was divided on these. Whereas the question of investigative powers is of fundamental interest to members of the profession, the question of how the Irba is governed is of great importance to society at large. The current requirement — which involves the finance minister appointing 10 individuals to serve on the board, has proven to somehow elude the finance ministry. Earlier this year, long after the term of the previous board had expired, Tito Mboweni finally decided to assemble a board to run the affairs of Irba.
Unfortunately, by the time it happened, a series of developments had materialised within the institution that have now paralysed its ability to operate. In its last act, the previous board appointed a new chief executive — Jenitha John — to replace Bernard Agulhas who had occupied the post since 2008. By executing this last “executive” act, the board had created a potentially problematic pitfall for the new board. As it turned out, John had previously served as the chair of the audit committee of Tongaat whose false accounting practices were exposed in 2019 and naturally brought the organisation within the ambit of Irba’s investigations. The anxiety associated with John’s appointment, centred on whether it was appropriate for Irba to appoint John at a time when the Tongaat matter was still mired in the bureaucratic lethargy of Irba’s own processes.
The problem — as it now appears — is that the newly appointed board did not actually meet the legal requirements as set out in the Auditing Profession Act. Its requirement that a registered auditor be a member, failed when firstly two of the appointed members — Shauket Fakie and Roy Andersen — failed to take up their appointments. In an act of belated regularisation, one of the newly appointed members — Nirupa Padia — took one for the team when she initiated a registration as an auditor after the appointment of the board. When another member — Preston Speckmann — resigned citing factionalism within the board centred around the question of the wisdom of appointing John, the veneer of legitimacy that such a board needs, evaporated.
As a chief executive who reports to a board that is itself unable to figure out whether it even exists legitimately, John has been paralysed on the governance front. And if the musings of whilstleblower are to be believed, she has also been paralysed on the operational front by the actions of the previous chief executive — Agulhas — who is accused of seeking to sabotage John in alliance with some insiders within Irba. The sum of these matters, means that rather than embarking on the task of restoring the public trust in the profession at large, Irba has descended into chaos.
Its greatest challenge is the question of how to deal with the Tongaat elephant in the room. John has indicated that she conducted herself properly when she chaired the Tongaat audit committee. In her defence, except for the natural anxieties associated with the complexities of unpacking corporate malfeasance, no one actually knows if she knew or was complicit in the fraudulent accounting practices at Tongaat. It is precisely that question that ought to be answered by an Irba investigation. The problem, however, is that the history of Irba in conducting investigations is reminiscent of Tolstoy’s War and Peace. As a result, the answer to the Tongaat question is not going to be established anytime soon. The effect of this state of affairs is that the Tongaat cloud will hang over her — and by extension Irba — for a while yet. In the whistleblower account, Agulhas is open to the idea of returning to run the ship until the Tongaat matter is resolved. The glaring problem with such a proposition is that it ironically puts John and Agulhas on the same footing. If the basis for removing her — even temporarily — is simply because of conflicts of interest associated with her overseeing the investigation of a company she was involved in; the same logic would apply in the case of Agulhas who will possess similar conflicts when overseeing an investigation that has a material impact on whether his successor gets the job or not.
Such a stalemate — involving a regulator and a profession whose primary mandate is to act in the public interest, would ordinarily attract the attention of government decision makers and the auditors themselves. The unfortunate reality is that the profession of auditors is notoriously averse to tackling contentious matters on public platforms. This is to be expected from a profession whose central tenets include an absolute commitment to confidentiality. The problem with this code of institutionalised silence, is that it has been superseded by the winds of chaos and misdemeanour afflicting the profession locally and globally.
From the outbreak of the KPMG saga to the recent entanglements involving Deloitte and PwC, the need to hear the view of an often-misunderstood profession has grown exponentially in recent years. Remarkably, the commitment to omertà has remained resolute. An opportunity to alter the course emerged with the creation of the South African Auditing Profession Trust Initiative (Saapti). On its otherwise static website, Saapti summarises that its mandate is to identify proactive responses to the concerns prevalent in the South African financial markets, the role of the profession in adding value to such markets and formulating responsive plans to rebuild trust in the profession. Such a lofty mandate needs to be backed up by evidence of Saapti actually understanding that if the commercial interests of its members are to be preserved, then preserving the profession is a collective duty that ought to trump individual interests. As it stands, the country’s auditing profession now exists at the precipice of public scepticism that is worsened by the crisis of the regulator itself. For a country whose auditing industry was lauded as the best in the world less than a decade ago, the fall from grace, is the type of thing only Trump has matched in recent times.