[CAVIE-ACCI] In addition to African Bank, Deloitte was also the auditor of Steinhoff and Tongaat Hulett at the time when both companies engaged in the alleged fraud that cost investors hundreds of billions of rands.
The state auditing watchdog has called for the deputy CEO of Deloitte Africa to face the most severe sanction available – a banning from the auditing profession.
This call follows the decision by the Independent Regulatory Board for Auditors (Irba) disciplinary committee, which found Mgcinisihlalo Jordan guilty of five charges related to the audit of African Bank before it imploded in August 2014, causing investors to lose tens of billions of rands.
The watchdog proposed that Jordan should be deregistered as an auditor, advocate Shem Symon, for Irba, said during Jordan’s sentencing hearing, which ran for three days up to Monday.
“It is very serious for a public company, and that justifies the deregistration,” he added.
The strongest protection
“The strongest protection of the audit profession and the public is required,” Symon said.
Lebogang Manganye, an Irba spokesperson, told Daily Maverick that since 2006 the watchdog had debarred 11 registered auditors for misconduct.
In March last year, Irba struck former KPMG auditor Jacques Wessels from its register for his six counts of misconduct related to the audit of Gupta-linked Linkway Trading.
Irba also called for Jordan to pay the maximum fine for each of the five charges. But the Irba disciplinary committee chairperson, advocate Alan Dodson, and another committee member resisted deregistering Jordan.
Symon later presented an alternative sanction, including that Irba suspend Jordan for three years.
Irba charged Jordan with 10 counts of misconduct related to the audit work he oversaw at African Bank and its holding company, African Bank Investments Limited (Abil), from 2009 to 2013.
Irba also charged Deloitte & Touche partner Daniel Crowther with one count related to dishonesty.
But the Irba disciplinary committee exonerated Crowther and Jordan on this charge.
Symon said Jordan had agreed to cover R31.2-million of Irba’s costs related to the disciplinary hearing.
Advocate Michael van der Nest, for Deloitte, said on Monday at the hearing that those costs were half of Irba’s legal fees in the matter.
Van der Nest said that deregistration of Jordan as an auditor was “utterly inappropriate” and was an “offensive” proposal.
He suggested instead that the Irba disciplinary committee should issue Jordan with a “severe reprimand” and the maximum fine on four out of five guilty charges and 50% for the fifth charge.
Linda de Beer, a corporate governance specialist, backed Irba’s proposal that the watchdog deregister Jordan as an auditor. She said this was because of the extent of the “audit failure” at African Bank that was “pervasive”.
“Fundamental errors occurred throughout the audit,” she said. “It was a comedy of errors.
“Should Mr Jordan be given another chance to audit? I think there is a huge risk that it goes wrong again.”
Bam, Jordan accept failure findings
Lwazi Bam, Deloitte Africa CEO, and Jordan in their testimonies accepted the disciplinary committee’s findings and conceded that the company and the audit partner had failed in the bank’s audit.
Peter Chidgey, an accounting expert called by Deloitte, said that Deloitte should also shoulder responsibility for the shortfalls with the audit of African Bank as he felt the firm had failed to provide Jordan with adequate support.
Bam accepted Chidgey’s criticisms. Deloitte, with the benefit of hindsight, had failed to provide Jordan with adequate resources to complete the audit of African Bank, he added.
Symon said Jordan had experienced Deloitte banking auditors to call on, but he had still made “elementary mistakes” when signing off the African Bank audits.
Dodson suggested making a “moral award” in the sentencing judgment against Deloitte, as Irba had not charged it for its failings in the African Bank matter.
He queried why Irba had not charged Deloitte together with Jordan and Crowther.
Dodson said that Irba’s practice of charging individual auditors, but not auditing companies needed to change.
Van der Nest said that if the Irba disciplinary committee were to find that the watchdog should deregister Jordan, then it would make auditing an even more unattractive profession.
When Jordan took the stand during the sentencing hearing, he said the ruling by the committee that he was guilty on five counts was “disappointing” as he felt he had made the right calls at African Bank.
“I have had difficulty explaining this to my family… and difficulty facing people that are respected in the industry,” Jordan said.
In 2018, Jordan made the following statement: “I do not believe that, with the benefit of hindsight, that I would have or should have formed a different audit opinion [at African Bank] in any of the years in question.”
However, Jordan said on Sunday that he accepted the view of the Irba disciplinary committee that he had signed off wrong audit opinions for years at African Bank.
“You failed the [African Bank] shareholders, the JSE, and you failed the South African Reserve Bank just to start with,” Symon told Jordan.
“When all is said and done, it doesn’t seem like you had a defence to these charges.”
“To suggest that I didn’t have a defence… I don’t think is justified. It was defendable,” Jordan said.
Too much pressure
Symon said Jordan had wasted the committee’s time by pleading “not guilty” to all 10 charges when he had no defence to most of the charges.
“Can you handle pressure, should you be in the profession handling big orders?” a disciplinary committee member asked Jordan in response to a comment that he had been under too much pressure for the African Bank audit.
Jordan said he could handle the pressure and used the example of a forensic review at the Landbank where his safety was at risk.
During an African Bank audit, Jordan said, he was getting three to four hours of rest a night over eight weeks. “It was physically daunting and overwhelming,” he added.
A disciplinary committee member accused Jordan of being “negligent” in that he let his staff on a particular African Bank audit go on leave while the audit files were incomplete.
“So, you had already signed the opinion with an incomplete file. Don’t you think that is negligent on your part?” the committee member asked Jordan.
Jordan admitted shortcomings and “personal failure” in the handling of that audit.
Bam has been Deloitte Southern Africa CEO since 2012 and Deloitte African CEO since 2013. He has been with Deloitte for 27 years and has known Jordan since 2003.
Bam said that before the charges levelled against Jordan for his audit of African Bank, Deloitte had received no complaints about him. Jordan had also been a lead partner for the audit of one of the four largest banks, he added.
Bam argued against debarring Jordan from the auditing profession.
He said Crowther took early retirement at the end of September this year, because after Irba laid its charges against Crowther in December 2016, he could effectively no longer practise as an auditor.
Van der Nest alleged that the Irba’s charges had destroyed Crowther’s career. Dodson took exception to that.
‘Stench’ will remain
Bam said that even though the Irba disciplinary committee had exonerated Crowther, the “stench” of this charge would remain with him and Jordan for a “very long time”.
Jordan stopped doing any auditing at Deloitte after Irba issued him with the charge sheet in December 2016, he added.
In addition to African Bank, Deloitte was also the auditor of Steinhoff and Tongaat Hulett at the time when both companies engaged in alleged fraud that cost investors hundreds of billions of rands.
These three major auditing scandals raise the question of what is wrong at Deloitte. Does Deloitte turn a blind eye to critical issues, or is it just a pure case of failure to do the required audit work?
Symon said that in the African Bank case there was a lack of evidence to back the audit findings. “It is poor audit practice,” Symon said. Jordan accepted this.
Deloitte is the auditor of several major JSE-listed companies including Cartrack, Grindrod, Life Healthcare, Merafe Resources, Nedbank, Oceana Group, Old Mutual, Sea Harvest and Tongaat Hulett.
How will Deloitte’s clients react to the guilty charges against Jordan?
Abil’s former empowerment partners are Hlumisa and Eyomhlaba, and together, they have 13,000 shareholders, who hold almost 5% of Abil, which owned the former African Bank.
Hlumisa and Eyomhlaba sue for R2.1bn
They are suing 10 former Abil and African Bank directors and Abil and Deloitte for R2.1-billion plus interest related to the failure of entities.
Desmond Lockey, Hlumisa chairman, testified during the sentencing hearing on Saturday about the impact on the empowerment partners of Jordan’s failure to sign off on correct African Bank financial statements.
Lockey alleged that Jordan produced “fraudulent accounting” when he signed off on the audit of African Bank’s financial statements.