Home Accounting and Auditing Why the Companies Act needs changing

Why the Companies Act needs changing

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Most accountants and finance executives will tell you that they are swaddled in regulations, laws and ethics codes.

That’s true. And yet we have just come through an agonising outpouring of corruption stories, courtesy of various commission of inquiry.

If we have enough laws, why then do we still have so much corruption, and why are accountants and finance executives often at the centre of these scandals?

On a recent anti-corruption debate on Classic FM, we were told that there are enough laws. What’s lacking is enforcement.

That’s also true (notwithstanding the fact that professional bodies have started to respond to the public outrage by investigating the miscreants within their ranks).

Nicolaas van Wyk, CEO of the SA Institute of Business Accountants (Saiba) argued convincingly for even more regulation.

Here’s why: Section 62 of the Close Corporation Act spells out the duties and responsibilities of the accounting officer. The accounting officer is obliged to report to the Registrar when a company’s liabilities exceed its assets and any instance where “an accounting officer becomes aware of any contravention of a provision of this Act, he shall describe the nature of such contravention in his report.”

The Companies Act imposes no such obligation on finance executives. The Companies Act has specific clauses dealing with the appointment of a company secretary and auditors, but there is no clause dealing with the expected conduct of finance executives or chief financial officers to report corrupt dealings.

What tends to happen in some corporations is CFOs will cower before the wrath of a domineering and autocratic CEO. If you think this is far-fetched, then read this. CEOs have a far higher percentage of psychopaths in their ranks (21%) than the ordinary population (1%).

We know from testimony of Bosasa chief operating officer Angelo Agrizzi to the Zondo Commission of Inquiry into state capture that he was subject to implicit and explicit threats unless he went along with his boss’s corrupt plans. It was, he said, a process of grooming. You get bought off with small gifts, then larger ones, until you are part of the corruption machine.

This is why the Companies Act needs changing – or a dedicated CFO Act needs to be drafted – spelling out the duties and responsibilities of finance executives and CFOs along the lines of that for accounting officers in the Close Corporation Act.

“The CFO should be obliged to attend an ethics course once a year and must make a declaration any time he is aware of an attempted or successful bribe or corrupt transaction,” says van Wyk. “Furthermore, if the CFO resigns, he or she must state the reasons for resigning. This is similar to the obligation placed on an accounting officer in the Close Corporations Act. Saiba will be formulating a more thorough response to this very important debate, with our suggestions on how we can start turning the tide on corruption.”

When CFOs and finance executives are obliged by law to report corrupt transactions or attempted transactions (or record keeping) at the risk of going to jail and losing their livelihood, the financial accounts of many firms will start to reflect the actual position – as required by law and by professional accounting body standards.

What’s also needed is legal protection for finance executives blowing the whistle on corrupt colleagues. Phone your professional body for advice and that’s pretty much all you’ll get: advice. What the CFO is really looking for is legal defence and protection. Whistleblowers are generally treated as outcasts and, slowly or speedily, forced from the company. If they were given immediate access to legal counsel, we would see more whistleblowers coming forward.

Whistleblowers are entering a gun fight with a pea shooter, when what they need is a bazooka in the form of legislated duties and access to legal protection.