Garbage in, garbage out

It is worrying for SA that the private sector provides an only limited fail-safe to government dereliction, since it, too, is bristling with wilful ignorance. Over the past decade, the country’s accountancy and management consultancy sector failed dismally to prevent at least a trillion rand of state looting during the Zuma presidency.

There is compelling evidence that in many cases they actively facilitated corruption but, as yet, not a single accountant or auditor has been charged by the police or disciplined by the professions’ “oversight” bodies. They are all still beavering away in back offices for vast amounts of money, “auditing” SA’s corporates and advising its state-owned entities.

That failure is not because there’s a shortage of regulatory bodies. There’s the SA Institute of Chartered Accountants, and the SA Institute of Professional Accountants, as well as minor supervisory offshoots for management accountants and internal auditors. There is also the statutory Independent Regulatory Board for Auditors.

A good example are the recent events at Tongaat Hulett, one of SA’s iconic corporate giants, where it was found that the financials had been systematically overstated for years, to reach R11.8bn in 2018. Its share price has dropped almost 90% in a year, wiping out billions of investment value.

This week, the new CEO, Gavin Hudson, told PwC’s global economic crime and fraud conference that Tongaat had laid criminal complaints against five former executives in SA and eight in Zimbabwe. Hudson noted that in the three years before the collapse, the group management committee had not held a single meeting. There are no minutes to be found for the past 13 years of meetings, something that KPMG, who assisted Tongaat’s internal auditors, somehow never noticed.

Sustained corruption, fraud and mismanagement cannot take place at a listed entity without some degree of collusion or criminal incompetence on the part of the board and the auditors. Yet, Deloitte, which was Tongaat Hulett’s external auditors for at least 21 unbroken years, apparently noticed nothing.

Sceptical that Deloitte, given its decades of uninterrupted association with Tongaat Hulett, could have been unaware of these irregularities, I asked them.

The full Deloitte’s response is appended below the column, so that you can make up your own mind as to its evasiveness. In essence, Deloitte says that Tongaat-appointed PwC investigation into the meltdown did not specifically blame Deloitte, any Deloitte partner, or any Deloitte employee for anything that occurred at Tongaat. Hence, overall, “we are of the view that PwC findings are positive for Deloitte”.

Question: What about the internal investigation that Deloitte last year announced? Might I see it?

No response from Deloitte.

Question: Does it remain Deloitte’s position, as imparted to the media in the wake of the Tongaat Hulett scandal, that “we have no reason to believe that any current or previous Deloitte partner or staff member may have acted outside of professional standards.”

No response. Deloitte does manage to imply that it still has Tongaat’s confidence, since it has been reappointed for the current financial year. It understandably neglects to mention that Tongaat told shareholders that it wanted to replace Deloitte but because of the now massively delayed financial statements, felt compelled to reappoint them for 2019/20. Nor does Deloitte mention that withdrew its entire Tongaat audit team — from senior partner down to apprentice pencil-sharpener — and a new team has been despatched to clean up the mess.

Question: Deloitte stated last year “Should our internal review processes prove otherwise, we will follow appropriate steps as required by our policy and the standards that regulate our profession.” So, what “appropriate steps”, if any, have been taken?

No Deloitte response, except to say that its Tongaat audit is being investigated by the Independent Regulatory Board and that it is co-operating.
Not much meat in that to munch upon. But then again, there’s not much Deloitte can credibly say. To my mind, what happened at Tongaat Hulett can be boiled down to a simple multiple-choice poser.

Question:
Under under Deloitte’s watch, an enormous amount of shareholder value was destroyed at a public-listed entity over a long period of time. How come?

Answer:
A. Deloitte’s staff were implicated
B. Deloitte’s staff were incompetent
C. Both of the above

The Deloitte debacle at Tongaat and its unwillingness to accept any responsibility or show any contrition is symptomatic of a South Africa audit, accountancy and management sector that reeks to high heaven. The outrageous behaviour of the big firms and the pusillanimity of the oversight bodies must be a source of misery and embarrassment to those in the profession with integrity.

Deloitte have had an audit role two other major collapses that rocked the business world, those of African Bank and Steinhoff International. Again, they noticed nada. They were also this year accused of impropriety, which they deny, in Eskom contracts of R207m awarded to them.

It’s tempting to be hard on Deloitte, which brands itself as being Always One Step Ahead. It does, after all, boast on its website of running both the Deloitte Africa Centre of Corporate Governance and the Deloitte Alchemy School of Management. (With magicking expertise and their track record at Tongaat, maybe they should change that tagline to We Make Assets Disappear.)

But KPMG (Cutting Through Complexity), legal firm Hogan Lovells (Legal Challenges Come From All Directions), as well as the consultancies McKinsey & Co (Change That Matters) and Bain & Co (Results Not Reports) have all been implicated in skulduggery. Indeed, none of SA’s big players is blameless. And all are still operating merrily, free of any legal or professional sanction.

Garbage in, garbage out doesn’t only apply to state entities.