Auditor slapped with R4,9 million in costs and R200k fine for Eskom audit

Managing director of SNG Grant Thornton admitted guilt in disciplinary charges related to the 2016 Eskom audit. This after Minister Pravin Gordhan wrote to IRBA.

Aaron Mthimunye was fined R200 000 and ordered to pay R4,9 million towards the costs of his disciplinary hearing conducted by the Independent Regulatory Board for Auditors (IRBA).  

The disciplinary matters relate to the 2016 Eskom audit. Mthimunye, currently the Managing Director of Assurance at SNG Grant Thornton, “was charged with breaching several of the rules regarding improper conduct, as a result of having issued an incorrect audit opinion in relation to his audit of Eskom,” according to an IRBA publication.

Mthimunye and IRBA settled in March, with Mthimunye admitting guilt. The matter initially came to IRBA’s attention because of a letter Minister Pravin Gordhan sent to the regulator. 

The Eskom audit occurred during the period which saw widespread state capture.

“All matters brought to the IRBA’s attention during the period of state capture that relate to the role of auditors are taken very seriously,” says Imre Nagy, IRBA CEO. 

“It is a widely accepted view that state capture has been harmful to the nation and the taxpayers of South Africa. The auditor’s role in the audit of financial statements of all public interest entities must have public interest at the heart of the audit.”

The charges largely hinge on issues of irregular expenditure at Eskom, and a failure to maintain professional scepticism.

“The Respondent was aware of the following circumstances, but he failed to recognise that they could cause the financial statements to be materially misstated and he proceeded to issue an unqualified audit opinion:

a) the reported irregular expenditure was not complete;

b) the extent of irregular expenditure could not be accurately quantified;

c) the amount of irregular expenditure was materially understated; and

d) there were internal control deficiencies that resulted in Eskom not identifying and recognising all irregular expenditure,” says Nagy.

In asking why Mthimunye settled, Georgia Diedericks, head of risk at SNG Grant Thornton.says, “The precedence of frameworks remain uncertain. Some seven years later there is still no clarity as to the subject matters of the case. The recent pronouncements by National Treasury relating to Eskom (around irregular expenditure) was an attempt to address the situation.”

What determined the costs order and fine 

Nagy explains that the costs order of nearly R 5 million was because Mthimunye was offered a fine before the matter was referred to the disciplinary committee but turned it down. “Simply put, had he admitted liability to the charges and the fine recommended by the investigating committee and confirmed by the enforcement committee, the matter would not have come before the disciplinary committee, and the legal costs would not have been incurred,” says Nagy. 

The disciplinary committee sat for two weeks in 2022, prior to the settlement.

Regarding the R 200 000 fine, this is the maximum amount IRBA can issue for matters as it occurred before the 2021 amendment to the Auditing Profession Act. 

“It may be argued that the monetary sanction is too low, and this has been a widely held criticism,” says Nagy. “It is for this reason that the IRBA sought the Act Amendments and the provision for the Minister of Finance to gazette the upper limits of fines. The Minister of Finance is yet to gazette the final upper limits.”

Diedericks did not state whether the firm or Mthimunye will paythe fine and costs order.