It was a glaring contrast. Days after the National Prosecuting Authority (NPA) was castigated by acting judge Nompumelelo Gusha for its shoddy handling of its first “state capture” case, involving Nulane Investments, the Independent Regulatory Board for Auditors (Irba) wrapped up its third such case at a canter.
Gusha, in dropping the charges against the eight people charged with fraud over the Vrede Dairy Farm saga, commented: “To say that the manner in which the case was conducted is comedy would be the understatement of the millennium.”
It was a depressing outcome for the state’s flagship assault on state capture. And it raises awkward questions about what’s likely to happen in more complicated matters, such as the case against the Guptas, let alone the fraud at Steinhoff and Tongaat.
In the private sector, accountability seems to be more within reach.
On Monday, the audit regulator held its “sanctions hearing” into the case involving Mitesh Patel, the former CEO of audit firm Nkonki, who had been found guilty on March 23 of three charges of breaching the Auditing Profession Act and Irba’s professional code of conduct.
In less than an hour, panel chair Ettian Raubenheimer accepted Patel’s settlement, which involved paying a fine and costs of R2.9m and “permanent disqualification from registration as a registered auditor”.
Patel’s sin — which was first laid bare, quite brilliantly, by journalists at amaBhungane — was to have fronted for the Guptas in organising a R107m “management buyout” of Nkonki in 2016.
So, while Patel had ostensibly “bought” 65% of Nkonki, that money had secretly come from the Guptas’ confidant Salim Essa, through Trillian Capital Partners.
Once the Guptas had an audit firm on their payroll, new doors opened. Nkonki, already the auditors of Transnet, soon scored a slew of lucrative contracts from various sources, including Eskom, into which the Guptas had already inserted their claws.
Nkonki soon popped up at critical inflection points: it gave “independent” advice to Eskom in defence of then CEO Matshela Koko, and also to Essa when he tried to convince the banking authorities to let him buy the Habib Overseas Bank.
This broke all sorts of accounting rules. Finally, in March, Patel was found guilty of three charges: fronting for a third party to buy Nkonki, a “failure to act in the public interest by entering into professional relationships with companies implicated in state capture”, and a “breach of the independence requirements” by auditing a company from which he’d obtained a loan.
At the time of amaBhungane’s revelations in April 2018, Nkonki’s board described it as a “serious shock” and Patel quit as CEO immediately. But the damage had been done, and Nkonki was liquidated soon after — a rapid implosion for a company that had done so much to put black accountants on the map.
Sindi Zilwa, who co-founded Nkonki as the first black-owned auditing firm with her brother Mzi Nkonki in 1996, told the FM this week that “it still hurts, to see our legacy going up in flames like that”. It was, she says, totally unnecessary.
To Zilwa’s credit, she and her brother had rejected the first offer brought to her by Patel in 2016, to buy out the firm. But a few months later, Patel came to them with a new offer, to buy out their 81% shareholding entirely, which they accepted.
In the absence of criminal accountability, the Irba sanction is the next best result.
Irba CEO Imre Nagy told the FM this week that Patel’s debarment — the highest available sanction — was vital for the protection of the public interest. “Effective enforcement serves as a deterrent to potential violators, as it sends a message that improper conduct will not be tolerated and there will be consequences for those who engage in unethical behaviour,” he said.
This is the third “state capture” case that Irba has finalised.
In February 2018, it struck Jacques Wessels, the KPMG auditor who audited the Gupta-owned Linkway Trading, from its register after finding him guilty on six charges of improper conduct. Second, it found Aaron Mthimunye, an auditor at SNG Grant Thornton, guilty on several counts when it came to the 2016 audit of Eskom. Last month, Mthimunye was ordered to repay R5.1m in fines and costs, but can remain an auditor provided he “attends training on public sector auditing”.
That might seem a trifling punishment, but at least it’s something.
Michael Marchant, head of investigations at Open Secrets, a nonprofit organisation focusing on private sector corruption, told the FM the Irba sanctions were a welcome contrast to what’s happening in law enforcement.
“Private bodies like Irba can never replace criminal accountability, but in a period where the NPA and Hawks are struggling so much, a sanction like this is a powerful contributor to accountability, especially when someone is permanently debarred,” he says.
If anything, Marchant says, bodies such as Irba, the SA Institute of Chartered Accountants (Saica) and those governing lawyers are likely to become more critical in holding people to account.
“If the NPA struggles with a fairly routine procurement case, you can imagine it will really struggle to go after the professionals — such as lawyers and accountants. That’s where the private sector bodies can really fulfil a role,” he says.
It’s a critical point, and all eyes will be on whether the NPA can successfully prosecute Gavin Kruger, the Deloitte auditor who signed off the flawed accounts of sugar giant Tongaat Hulett.
A year ago, Kruger was charged criminally in the wider fraud, including two counts of contravening the Auditing Profession Act.
Nagy says Irba will finalise its Tongaat case, along with that of Steinhoff, before next March, and it’ll be interesting to see if it takes the same tack as the NPA on Kruger.
Either way, you can be sure that given the state’s track record, the auditors will be far more afraid of their own regulators than of a visit from the Hawks.
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