Dubious accounting and auditing affects foreign investment, says Kimi Makwetu

06 June 2019 - 16:47 By LUYOLO MKENTANE
Auditor-general Kimi Makwetu. Picture: BUSINESS DAY
Auditor-general Kimi Makwetu. Picture: BUSINESS DAY

Auditor-general (AG) Kimi Makwetu has warned that the litany of misdeeds dogging the accounting and auditing professions could hamper foreign investment in SA.

BusinessLIVE reported that Makwetu said accounting scandals and irregularities at global retailer Steinhoff, VBS Mutual Bank and, most recently, sugar producer Tongaat Hulett, along with problems at state power utility Eskom and state asset manager the Public Investment Corporation (PIC), do not help in polishing the domestic and global image of South Africa.

The World Economic Forum’s global competitiveness report for 2017/2018 showed that SA lost the number one spot it had held for the previous seven years with regards to the strength of reporting and auditing standards. It is now ranked 30th.

"That we are now in the 30-something spot means the significant erosion of trust in the auditing and accounting profession has already happened," Makwetu said in his keynote address at a Brand Summit SA event in Johannesburg on Thursday.

Makwetu said the culture of bribery in the accounting and auditing professions had sustained political leaderships and looted already-impoverished communities.

"The paying of bribes for business contracts exposes the company to risks and defrauds other companies whose officials are persuaded to make unsound business decisions."

He noted that evidence coming out of the state-capture commission, chaired by deputy chief justice Raymond Zondo, "shows this reality has not changed much ... Auditors have significant stakes in securing the interest of citizens. This public interest becomes the essence of a values-driven and ethical leadership."

Last year, Makwetu questioned SizweNtsalubaGobodo on the quality of work the auditing firm did after it initially gave state arms manufacturer Denel a clean audit without any supporting evidence. Also about a year ago, auditing firm KPMG closed its regional hubs after the AG announced that the government would no longer use the firm’s services for auditing contracts. 

This was during the time when JSE-listed companies were dropping KPMG over serious concerns regarding its integrity and the quality of work it conducted for the controversial Gupta family, who are at the centre of state-capture allegations.

KMPG also took the flak for the role its former employees Sipho Malaba and Dumi Tshuma allegedly played in the VBS scandal, in which the mutual bank was looted of nearly R2bn by its directors and politically connected business people.

Malaba, who was head of KMPG’s biggest division, financial services auditing, pocketed nearly R34m from VBS. Malaba and Tshuma resigned from the bank last year.

Tongaat Hulett comparable to Steinhoff

On Thursday, Makwetu said the Tongaat Hulett scandal was in the same league as the Steinhoff saga, in which the global retailer lost more than R100bn last year as a result of the cited accounting irregularities.

Tongaat Hulett announced last week that it needed to restate its financial statements for the year to March 2018 after identifying "past practices which are of significant concern".  The sugar producer said it would probably have to reduce the equity on its 2018 balance sheet by between R3.5bn and R4.5bn — about a third.

"The happenings of this current period have become a replication of what we have been accustomed to over a number of years," said Makwetu, noting that those who presided over these scandals often left with "bulging back pockets", or jumped ship before walking the plank.

The AG said what was most disconcerting was that the latest audited financial results of listed companies often gave little indication of any "impending financial collapse". This raised interesting questions about corporate governance and the involvement of management, the board, auditors, shareholders, and the regulatory authorities.

"They seem to let things slip by unnoticed until they go awry," he said.

Makwetu called for the restoration of trust in the accounting and auditing professions, saying no economy could survive without the oversight responsibilities of these two professions.

- BusinessLIVE