There is no question that the office of the Auditor-General, currently headed by Kimi Makwetu, has done outstanding work in holding public officials to account. His staff have been threatened, shot and harassed whenever they got too close to some of the criminals who infiltrated governmental structures. And yet the job of auditing those in charge of public funds continues, sometimes against incredible odds.
Kimi Makwetu’s term expires in November this year, and Parliament is looking for a replacement.
The AG’s office has demonstrated itself to be scrupulously independent of government and it is vital that it continue to operate free of political hinderance. The National Assembly has appointed a special committee comprising 11 members (six from the ANC, two from the DA, one from the EFF and two from the smaller parties) to find a successor.
The reports issued from the AG’s office seldom make for comforting reading. For example., through the AG we learned that just 18 of the country’s 257 municipalities received unqualified audits. We also learned from the AG that the 20 State-Owned Enterprises (SOEs) accounted for R2,8 billion in material irregularities – most of this coming from Passenger Rail Agency of SA (Prasa).
We also learned that 60% of the “revenue” reflected on municipal books will never be recovered.
Many of our SOEs have been mismanaged into bankruptcy, and most municipalities are dysfunctional and in many instance unable to provide basic services. We also learned from a recent Open Secrets report called The Auditors how the AG in many instances picked up accounting irregularities that were missed by external auditors at SAA and other SOEs.
The AG is vital in holding these public entities and those who manage them to account.
It is for this reason that the Public Audit Act was amended last year to give the AG more powers to enforce compliance with its dictates.
The AG can now refer “material irregularities” to the police, the public protector and the special investigations unit, and recommend remedial action with timelines.
If no action is taken by the stipulated date, the AG must take action itself and instruct the accounting officer at the public entity to quantify and recover the loss.
If that fails, the AG must issue a certificate of debt to the accounting officer or the relevant accounting authority. It then falls to the minister or other executive authority to recover the loss.
The AG under Kimi Makwetu has shone a light on malpractice within the public sector and it is vital that his replacement continue the work he has started. Here is some of what we learned about the Big Four from the Open Secrets report:
- KPMG auditor Sipho Malaba failed to raise any red flags in VBS Bank statements and provided a falsified regulatory audit opinion.
- Deloitte failed to report suspicious activities and fraud at both Steinhoff and Tongaat Hulett. The Steinhoff fraud resulted in an overnight loss of R120 billion, to the detriment of 948 pension funds. The Government Employees Pension Fund (GEPF) alone lost over R21 billion.
- PwC failed to identify major misstatements while the external auditors at SAA. PwC and its partner, Nkonki, earned R19 million for their work at SAA, but were only fined R200 000 for failing to disclose SAA’s noncompliance with legislation.
- Deloitte’s audit of African Bank failed spectacularly in 2014. Deloitte missed red flags in the overstated future cash flow predictions for the bank and ignored the red flags raised in its own internal reports.
- Deloitte earned R207 million in fees for an Eskom tender based on an irregular contract. In March 2020, Deloitte agreed to pay back R150 million, which allowed them to keep over R57 million earned between April 2016 and September 2017.
- Leaked emails suggested KPMG was complicit in allegations of state capture by the Guptas.
But perhaps the AG’s role should be expanded to embrace oversight of the Big Four audit firms, bearing in mind the following:
The Open Secrets report highlighted the Stockholm Syndrome that arises when companies are allowed to select their own auditors. In some cases, companies have had the same external auditor for more than 100 years, raising concerns over the independence of their audits, and their apparent willingness to look past gross financial irregularities.
We can thank Kimi Makwetu for a job well done.