AFRICAN BANK AUDIT
Deloitte accuses Irba’s investigator of bias in African Bank probe
Deloitte has accused the Independent Regulatory Board for Auditors (Irba) investigator of bias, saying he was hellbent on finding "only negatives" when reviewing audit work done for African Bank before its collapse.
In what was initially scheduled to be the last day of the disciplinary hearing in which Irba is looking into the quality of Deloitte’s audit at African Bank, the firm said the investigator had taken on the probe already convinced that there was misconduct, and went in looking for confirmation.
Initially one of the hottest stocks on the JSE, African Bank was placed into curatorship in 2014 after it succumbed under the weight of bad debt following its acquisition of furniture retailer Ellerines.
A report by John Myburgh on the collapse of the lender accused directors of negligence.
The investigation comes at a time when auditing firms are under intense scrutiny in the wake of massive corporate scandals, including the collapse of Steinhoff International’s share price, after the disclosure of "accounting irregularities", and the fraud that destroyed VBS Mutual Bank.
Deloitte accused the investigator of not understanding the pressure and complexity of auditing a bank in distress. "You are supposed to be objective, but all you do is look for negatives," said Michael van der Nest, the lawyer representing Deloitte.
Irba spent most of the 20 days scheduled for the hearing presenting evidence to support 10 charges it levelled against two Deloitte partners, Mgcinisihlalo Jordan and Danie Crowther.
Deloitte, which started cross-examining Irba’s investigator on Thursday, has not yet pleaded its case. The hearing is expected to continue for at least 44 more days from July 2019.
In its cross-examination, Deloitte leaned heavily on the fact that Irba’s investigator is a specialist in forensic auditing focused on fraud and had never investigated bank audits or prepared a bank’s financial statements. Van der Nest questioned how the investigator could pass an opinion about the quality of Jordan’s work, and likened his opinion to that of a critic who had never been in a kitchen.
Irba’s investigator has, however, conducted forensic audits including on microloan businesses and pyramid schemes, and argued that the audit of a bank was not worlds apart from others he had conducted. He claimed Jordan, because of his long relationship with African Bank, had become too close to the bank’s management to maintain his independence.