Has Saica lost its way?

What do Steinhoff’s former CEO Markus Jooste, ex-Eskom finance boss Anoj Singh and one-time Gupta auditor Jacques Wessels have in common?

You’d be right if you said state capture, allegations of fraud or unethical behaviour.

But you’d be forgiven for not guessing they are all members in good standing of the SA Institute of Chartered Accountants (Saica).

Telling, isn’t it, that a professional body – which has emblazoned on its latest annual report the motto "Towards an empowered, ethical and successful SA" – would allow its own members to fall so short of the standards it professes to uphold.

The much-bemoaned state of the audit and accounting professions — laid bare by a growing list of scandals including Steinhoff, Eskom, KPMG, the Guptas and VBS Mutual Bank – has cast a glaring spotlight on Saica’s own shortcomings.

The picture isn’t reassuring. And this has led to a growing number of the institute’s 43,000 members demanding that action be taken against delinquent accountants to protect the brand equity of their own Chartered Accountant of SA — CA (SA) — designation.

Only 10%-15% of Saica members are registered auditors and therefore regulated by the Independent Regulatory Board for Auditors (Irba). The rest are, in effect, self-regulated.

Saica hasn’t questioned "the value of the right to add CA (SA) behind your name," says Trevor Manuel. "Is it still cherished? There may have been a time when membership meant something and CAs wore that with pride," the former finance minister and current Old Mutual Ltd chair tells the FM.

"It’s as if we should raise a glass of champagne to Saica’s decision to prosecute Singh, when they don’t seem to know that Jooste also attaches those letters [CA (SA)] to his name."

Craig Butters, a portfolio manager at Prudential Investment Managers, says he is still proud of the designation and the profession.

Butters has been in contact with Saica since January, expressing concern over its failure to act against Jooste and its tendency to "outsource important investigations".

"The increasingly frustrating perception that Saica is no more than a ‘club’ needs to be addressed and dispelled," Butters says.

More than five months on, he remains concerned about the state of the profession and says the implications of Saica "sitting back and doing nothing" are far-reaching.

"We need to show leadership and act decisively to protect the reputation and integrity of our profession."

Ticking boxes and signing declarations is meaningless if this is not backed up with action against transgressors, he says.

After a column in the FM, Cullen Penny, a financial manager at a Cape Town-based law firm, went as far as to resign as a Saica member because of its lack of action against Jooste and Singh — he thinks both should be suspended immediately following the outcome of a hearing — and its failure to sanction other high-profile delinquent members.

Singh has appeared before Saica’s professional conduct committee and is to face a disciplinary hearing.

"Saica is on the back foot and is not being proactive," Penny tells the FM. For example, he says, Saica did nothing in reaction to the FM column, which said it has been "a dismal failure more intent on looking after its own than doing what would be best for the public".

In the end, Penny agreed to keep his membership after a lengthy meeting with a Saica representative, who met him within days of his e-mail notifying the institute of his intention to resign.

"Saica admits they need to act decisively and timeously. I’ve decided to give them the benefit of the doubt, but I’m not convinced they will act quickly," he says.

The seriousness of the challenge facing Saica goes far beyond a few miffed members, considering that CAs are relied on for everything from corporate valuations to verifying the integrity of state expenditure.

CAs lead a third of SA’s listed companies, according to Saica, which, apart from suffering from a chronic failure to uphold the good name of its members, is beset with its own internal ethical failures.

Late last year, the institute commissioned PwC, its internal auditor, to conduct a forensic investigation into various whistleblowing reports alleging wrongdoing by its own staff members.

Among a laundry list of misdemeanours to be investigated was the incorrect use of a company credit card by Saica’s now former CFO, Abdul-Kader Mohamed, who spent R323,656 on the card, R101,379 of it unaccounted for, PwC finds in a preliminary report seen by the FM.

Mohamed was also accused of stealing office furniture when Saica moved its Johannesburg head office from Bruma to Illovo, after a staff member spotted a Saica couch on his Facebook page.

The furniture was returned to Mohamed’s office in the new building in January 2016, according to PwC.

Mohamed, who used the credit card for personal expenses of R13,000, is one of six employees against whom PwC has recommended disciplinary action.

It will also be going after former facilities manager Frikkie Nel, who solicited funds from Saica suppliers for "an apparent trip his daughter was to take to Ireland to represent SA at the Kickboxing World Championship", says PwC. 

According to PwC, Paragon Interiors, one of three suppliers that contributed to Nel’s daughter’s trip, was later awarded a contract to be the interior decorator of the new Saica buildings in Illovo. However, the FM has seen documents from Paragon Interiors showing that it was awarded the Saica contract about six months before Nel requested the donation. The contract had been almost entirely paid up before the donation was requested, which donation, says Paragon, was made in "good faith".

Other Saica employees will have to answer as to why they flouted the institute’s hiring processes in favour of apparent nepotism and cronyism.

It is worrying that the body tasked with upholding professional standards and integrity among chartered accountants can barely keep its own house in order.

Naturally, Saica sees it differently.

"You are bound to have behavioural problems despite tight controls," says acting Saica CEO Fanisa Lamola. "At the end of the day you must have systems that will pick up behaviour that is not acceptable. Our controls worked in that people picked up issues and blew the whistle."

Lamola was made acting CEO after Terence Nombembe was seconded to the state-capture inquiry to assist deputy chief justice Raymond Zondo with the investigations. She was previously Saica’s executive director for corporate services.

In her interview with the FM, Lamola says the institute’s external auditor, until recently KPMG, was comfortable that there were no systemic issues and it was just a question of tightening up a few policies.

"Internally I’m really not worried that we are facing a crisis. It was more of a reassurance that we do have controls that work," she says.

Nombembe himself was rapped over the knuckles by the Saica board for interfering in KPMG’s attempt to resign as Saica auditor back in November, according to board minutes seen by the FM.

KPMG — whose employees are the subject of a Saica-commissioned probe, the Ntsebeza inquiry, into its work for Gupta family companies — was rightly concerned that staying on as Saica’s external auditor could create a public perception that its independence was compromised.

Nombembe had advised KPMG to withdraw its offer to resign as external auditor, in the interests of restoring calm and awaiting the outcome of the Ntsebeza inquiry, despite no such instruction being given by Saica’s executive committee.

"It is incumbent upon the CEO to follow due process and obtain board approval on matters of a sensitive nature prior to unilaterally embarking on interventions such as this," Saica’s board minutes note.

KPMG resigned as Saica’s auditor in June.

Much of Saica’s internal angst, including the draft PwC report, has come to light due to Khaya Sithole, the definitive Saica insider who became the definitive Saica outsider.

Now facing a disciplinary hearing, Sithole was the programme manager for Saica’s Thuthuka Bursary Fund while an accounting lecturer at Wits University from 2014 to 2016. The fund is a private sector-funded scholarship scheme for black and coloured students who are from poor families and wish to study accounting.

Saica has charged Sithole with fabricating a signed letter from the fund’s project director, Nthato Selebi, which he then gave to 129 Wits accounting students, falsely claiming they had been awarded Thuthuka bursaries.

The fund had to find more than R10.7m to cover these students’ costs, says Saica.

In a 27-page affidavit, Sithole denies the charge of fraud, noting that Selebi had sight of the letter when signing off on invoices and never once raised a red flag.

He does, however, admit to irregularly amending the dates and details of a "one-off" letter, which Selebi sent to him in January 2014. "The fact that this is completely wrong is indisputable," Sithole wrote in an 11-page letter to Nombembe in December 2016, in which he admits that he "screwed up — spectacularly".

But the case is not that simple. And it paints a picture of an apparent failure of leadership and oversight by the likes of Nirupa Padia, the head of the Wits school of accounting, who was not only aware that Sithole was using an outdated letter to register subsequent groups of students, but also repeatedly imposed students on the Thuthuka programme, including foreign nationals.

Padia declined to answer questions sent to her by the FM.

Wits says it "categorically rejects" Sithole’s allegations. "The university reserves its right to comment at a later stage and to take appropriate action against any person or body who makes false allegations or brings the university’s name into disrepute," it told the FM via e-mail.

Whether Sithole is some kind of Robin Hood, simply a fraud, or an overworked individual who made an honest mistake with no malicious intent, remains to be seen.

But the highly public profile that Saica has given his case — one of 265 in the disciplinary process pipeline — while CAs who have deliberately defrauded millions of SA taxpayers seemingly face no consequences, leaves much to be desired.

On at least one issue, Sithole’s affidavit does appear to fall short: that is the matter of Lamola’s alleged housebreaking and theft while municipal manager of Polokwane between December 2010 and April 2012.

In Sithole’s version, Lamola broke into the offices of municipal officials and stole personal belongings. He says he has the CCTV footage to prove it.

On Lamola’s version of events, she was conducting a formal raid on employees’ offices with forensic investigators after it emerged that one of the officials had unlawfully signed off on a development that contravened town-planning rules.

Rather unluckily, someone appears to have cut a clip of CCTV footage depicting her apparently trying to wipe fingerprints off an office door. The unedited version shows a team of forensic investigators going into and out of various offices, Lamola says.

In any event, the National Prosecuting Authority (NPA) at local and national level found that a charge of housebreaking with the intent to commit a crime could not be sustained against her.

Interviewed by the FM, a self-assured Lamola explains the Polokwane episode in quite some detail, clearly ready to confront in court one of the officials who is now pressing civil charges against her.

On the PwC forensic report, Lamola makes much of the fact that none of Saica’s four executive directors — Nombembe, Chantyl Mulder, Lindie Engelbrecht and herself — had been found wanting.

But that is cold comfort for a profession in crisis, where even a hint of malfeasance in the corridors of its official standard bearer would raise serious questions over the body’s fitness to fulfil that role.

While Saica cleans house, members are increasingly disappointed that it has taken no action against the likes of Steinhoff’s Jooste.

Admittedly, Saica — which is not a regulator and does not have investigative powers of search, seizure or subpoena — relies heavily on the findings of parliament, the NPA and Irba.

Still, it beggars belief that despite his own company reporting him to the Hawks, and to say nothing of information in the public domain, Jooste remains a Saica member. "All CAs publicly reported in the media are subject to investigation by SAICA," says Lamola.

Lamola says Saica’s constitution, approved annually by members, does not allow it to suspend members until they have been found guilty through a disciplinary hearing.

But corporate governance specialist Linda de Beer doesn’t buy this argument.

The outspoken former Saica executive says members who are the subject of investigations bring the CA (SA) designation into disrepute.

This should constitute a contravention of the conditions of their membership contract and lead to a suspension of membership until a disciplinary hearing is finalised, she adds.

While it would be easy enough for the Saica board to propose a change to its by-laws, "the people making these decisions are conflicted", De Beer tells the FM.

"I feel strongly that Saica’s board needs independent directors who are not CAs."

Astonishingly, Saica’s board is made up entirely of chartered accountants, a number of whom work for audit firms.

Its chair, Lwazi Bam, is Deloitte CEO.

Suspending members pending the outcome of investigations would have direct implications for the likes of Deloitte, whose employees are the subject of Irba investigations into the firm’s role as auditors of African Bank and Steinhoff.

This, says De Beer, goes to the heart of Saica’s problem: it lacks a clear public-interest strategy and has become too inwardly focused. The big four firms wield too much influence, she says.

The number of individuals on Saica’s board who represent big auditing firms gives the appearance of a lack of independence, agrees Roy Andersen, a CA and former Liberty CEO. "It’s a bit awkward when there are people on the board whose firms are under investigation. Though the investigation committee is a completely separate group of people, it still begs the question," he says.

Saica is not a listed company and so is not strictly required to adhere to the King 4 code on corporate governance and appoint independent nonexecutive directors. But the institute should lead by example.

Saica seems to have been unaware of the glaring blind spot in the independence of its board, judging by the following extract from its most recent annual report: "While an inherent conflict of interest exists in that all board members are members of Saica, such a conflict is mitigated in that board members are not involved in the day-to-day operational management of the institute."

The comical reasoning continues: "All nonexecutive board members are considered to be independent as they have no material interest in Saica, the Saica group entities, or any of Saica’s significant suppliers or customers."

Mercifully, Saica seems to have finally become aware of its own spin. At its AGM last month, it announced a review of its governance, constitution and disciplinary processes, the deficiencies of which had been highlighted by the "crisis" facing the chartered accountancy profession, it said.

"Recent corporate scandals have eroded credibility and trust in a profession whose very reputation is based on ethics and standards. So this is a matter of national interest," Saica says.

Saica is not the only professional body facing something of a credibility crisis. The Financial Planning Institute of Southern Africa (FPI), the body that accredits certified financial planners, last month placed its CEO, Godfrey Nti, on special leave while it investigates allegations of financial misconduct against him.

It is also the subject of a Financial Sector Conduct Authority (formerly Financial Services Board) probe into cheating on the regulatory examinations it administers.

FPI employees helped would-be advisers cheat on their regulatory exams.

These are compulsory for all intermediaries, demonstrating that they meet certain basic requirements to sell financial products.

The institute’s independence has been called into question because of the apparent lack of objectivity at the top

—  What it means

"This is extremely embarrassing, we are absolutely irate that this has happened," FPI chair Ntai Phoofolo tells the FM. "We hold ourselves to very high standards because we expect our members to be held to high standards by the public. Our members will start to wonder ‘are we still safe within the FPI umbrella?’."

The blunder is made more awkward by the fact that this is the second time in the past decade that FPI insiders have aided cheating on these exams. Individuals implicated in the first episode, who fixed about 130 exams, are facing criminal proceedings, says Phoofolo. He is at pains to point out that the division administering the regulatory exams is entirely separate from the unit overseeing the FPI’s "professional competence exams", which include those required to become a certified financial planner.

Still, the failings at Saica and the FPI point to a fundamental issue faced by all professional bodies: being all too easily dominated by the narrow interests of their loudest members at the risk of ignoring the wider public interest that those members are supposed to serve.

Perhaps the most infamous example of this in recent years has been Ronald Bobroff, a personal injury attorney.

Bobroff has been found guilty in a number of cases of overcharging on "contingency fees" by millions of rand concerning Road Accident Fund claimants. He was a long-time president of the Law Society of the Northern Provinces.

Talk about rot at the top. Bobroff’s powerful position meant it was years before he was finally brought to book.

Anthony Millar, as president of the Law Society of the Northern Provinces from 2015 to 2016, was instrumental in ensuring that a court struck Bobroff and his son Darren off the roll of attorneys.

Having represented a number of clients against errant fellow practitioners, Millar remains of the view that proper disciplinary processes, though admittedly slow and frustrating, are vital to ensure that everyone’s rights are protected.

"Just because you might feel that an attorney trampled on your rights and should be brought to book immediately, does not mean they should not have the opportunity to defend themselves," Millar tells the FM.

"The number of really bad eggs pales into insignificance when you consider the number of attorneys practising," he says.

Still, the damage caused to the image of the profession is disproportionate to the number of individuals practising.

And that’s the rub: even if the vast majority of chartered accountants are honest, hardworking individuals, it takes only one bad apple to spoil the whole barrel.