Home Accounting and Auditing Irba board divisions were not caused by the incoming CEO – Motala

Irba board divisions were not caused by the incoming CEO – Motala

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Comment from Nicolaas van Wyk, CEO of Saiba: There has been a lot of discussion about the appointment of Jenitha John as CEO of the Independent Regulatory Board for Auditors (Irba), particularly given her previous role as head of the audit committee at Tongaat Hulett – a company which was found to have misstated its financials in previous years (and under previous management).

There was justifiable concern that Jenitha, as head of Irba, would find herself in a conflicted position as she would have to oversee an investigation into a company in which she was a senior executive.

Saiba made a submission to the Minister of Finance pointing out the potential conflicts of interest, and the Minister replied that National Treasury was looking into the matter.

As reported by Accounting Weekly here and here, the Minister did indeed follow the correct process in reviewing the matter, having received submissions from Saiba and others.

To better understand the history behind Jenitha’s appointment, Saiba engaged with Irba and Ms John to arm itself with all the facts. We believe this is the responsible thing to do. We are satisfied that Ms John raised the necessary red flags regarding the misstatement of financial results at Tongaat, nor has there been any suggestion by the company itself, its auditors or those close enough to the scene to understand the matter fully, that Ms John was involved in any wrongdoing.

We are also satisfied that Minister Mboweni has applied his mind carefully to the matter and has acted appropriately.

He has accepted the resignation of the Irba Board and Nonkululeko Gobodo and Roy Andersen have taken over as interim caretakers. As the following article from Moneyweb makes clear, Ms John’s appointment as Irba CEO appears to have been made extremely difficult as a result of divisions within the board itself. As any CEO in such a position would appreciate, trying to manage an organisation without the full support of the board is next to impossible.

Saiba therefore supports the process followed by Minister Mboweni, and the decision to accept the resignation of the board in the circumstances outlined is the right one. – Nicolaas van Wyk, CEO, Saiba.

From Moneyweb: Former board member of the Independent Regulatory Board for Auditors (Irba) Iqbal Motala has come out in defence of the audit watchdog’s chief executive, Jenitha John.

Motala resigned from Irba on January 25 – one day before Finance Minister Tito Mboweni decided to dissolve the board after holding discussions with its members regarding the “position the board [had] taken in respect of the chief executive officer and to discuss the resignation of a number of board members”.

Motala was not present at the meeting between Mboweni and the other board members. He has however rubbished claims that the controversial appointment of John was at the heart of the minister’s decision to fire the board.

In a statement, National Treasury said the dissolution of the board was in line with Section 12(5) of the Auditing Profession Act, which gives the finance minister the power to terminate the contracts of the members of the regulatory board if their performance is deemed unsatisfactory.

Mboweni declined to expand on which aspects of the board’s performance he found unsatisfactory.

A lawyer by profession, Motala was reappointed as a member of the Irba board in June last year but abruptly resigned in January, after he “realised that there was a concerted effort to get rid of Jenitha [John]”.

Scandal

The board had seen a series of resignations and allegations of infighting stemming from the appointment of John as CEO because of her history with sugar processing firm Tongaat Hulett.

John had served on the Tongaat Hulett board since 2007, and was chair of its audit and compliance committee in 2018 when the company was involved in an accounting scandal. It was found to have overstated its assets by R4.5 billion.

A PwC report implicated 10 Tongaat Hulett executives in the scandal but this did not deter the Irba board from appointing John as its chief executive.

When she assumed the position in June 2020, there was a backlash – including from civil society organisation Outa (the Organisation Undoing Tax Abuse) and the Democratic Alliance, with both questioning the appointment and calling for the decision to be reversed.

A glimpse behind the scenes

Former board member Preston Speckmann told Moneyweb that he resigned after the newly-appointed board held its second meeting in July 2020. His resignation letter to Mboweni in August gave the public a glimpse of the divisions within the board and set the ball rolling for more board resignations.

Prior to Motala handing in his own letter of resignation, Zunaid Vally (who was appointed to replace Speckmann) and former board chair Martie Janse van Rensburg resigned from the 10-member board.

Speckmann explained to Mboweni that there were “distinct groupings” within the Irba board – the “old” group, which was “hell-bent” on having previous chief executive Bernard Agulhas return to his position, and the “new” group consisting of newly-appointed members of the board.

“The new group did not want interaction with Ms Jenitha John, the CEO,” reads Speckmann’s letter.

“She was excluded from any deliberations at every turn. They did not speak to her, meet her or have anything to do with her.

“In their own words, she must leave given the Tongaat Hulett matter.”

Motala notes that: “In his [letter of] resignation Preston Speckmann did not allude to the fact that he resigned because of the appointment of the CEO, instead he resigned because of the manner in which the board was dealing with the CEO.

“I fully endorse what Preston said.”

Irba’s defence

Motala says if the board had fired John over the Tongaat matter, it would have exposed itself “professionally”and “financially” because the board received a legal opinion that John’s appointment was above board, adding that the board did not find an “iota of evidence” that she was implicated in the Tongaat scandal.

In May last year, the board defended its decision to appoint John to Mboweni.

In response to questions from the minister’s office regarding the processes followed to appoint her, which has been seen by Moneyweb, the board said its decision was in line with the principle of “innocent until proven guilty,” adding that PwC made no reflections on the conduct of the non-executive directors [including John]”.

John declined to comment on the dissolution of the board and her appointment as Irba chief executive.

The board’s responses to the minister in May last year, however suggest that Agulhas was disgruntled over the decision not to reappoint him as chief executive after a decade at the helm of the organisation. Agulhas has previously denied these allegations.

The board further told Mboweni that Agulhas was asked to exit his position at the end of May 2020, one month before his contract was due to end on June 30, 2020.

At the time, the board said: “Should Mr Agulhas remain, the environment would not be good for Ms John and the entire Irba staff.

“What has become apparent is that the handover would be hostile.”

A new board is expected to be appointed in three months’ time, with businesspeople Nonkululeko Gobodo and Roy Andersen appointed by Mboweni as interim caretakers.