Auditor-general Kimi Makwetu. Picture: BUSINESS DAY
Auditor-general Kimi Makwetu. Picture: BUSINESS DAY

Auditor-general Kimi Makwetu has called for trust in the professions to be restored to help SA attract much-needed foreign investment, following a string of accounting scandals thatcalled into question local auditing standards.

He said accounting scandals at global retailer Steinhoff, VBS Mutual Bank and most recently sugar producer Tongaat Hulett, along with problems at state power utility Eskom and state asset manager the Public Investment Corporation (PIC) had dented SA’s image as a credible investment destination for local and global investors looking to park their money.

SA has lost the number one spot it had held for the previous seven years with regard to the strength of reporting and auditing standards; it was then ranked 30, a 2017/18 World Economic Forum competitiveness report has shown.

"That we are now in the 30-something spot means the significant erosion of trust in the auditing and accounting profession has already happened," Makwetu said in his keynote address at a Brand Summit SA event in Johannesburg on Thursday. Makwetu said the culture of bribery in the accounting and auditing professions had sustained political leadership and looted already impoverished communities.

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In 2018, Makwetu questioned SizweNtsalubaGobodo on the quality of work the auditing firm did after it initially gave state arms manufacturer Denel a clean audit without any supporting evidence.

Also about a year ago, auditing firm KPMG closed its regional hubs after the auditor-general announced that the government would no longer use the firm’s services for auditing contracts.

This was at a time when JSE-listed companies were dropping KPMG because of serious concern about the quality of the work it conducted for the controversial Gupta family, who are at the centre of state-capture allegations.

KPMG also took the flak for the role that its former executives Sipho Malaba and Dumi Tshuma allegedly played in the VBS scandal, in which the mutual bank was looted of nearly R2bn by directors and politically connected business people. Malaba, who was head of KPMG’s biggest division, financial services auditing, pocketed nearly R34m from VBS.

Malaba and Tshuma resigned from the bank in 2018.

On Thursday, Makwetu said the Tongaat Hulett scandal was no different from the Steinhoff saga, which all but wiped out shareholder equity after the company revealed a massive hole in its accounts due to overstated profits and asset values. Tongaat Hulett announced last week that it needed to restate its financial statements for the year to March 2018 after identifying "past practices, which are of significant concern".

The sugar producer said it would probably have to reduce the equity on its 2018 balance sheet by between R3.5bn and R4.5bn — about a third.

"The happenings of this current period have become a replication of what we have been accustomed to over a number of years," said Makwetu, noting that those who presided over these scandals often left with "bulging back pockets", or jumped ship before having to walk the plank.

He said that what was most disconcerting was that the latest audited financial results of listed companies often gave little indication of any "impending financial collapse". This raised interesting questions about corporate governance and the involvement of management, the board, auditors, shareholders and the regulatory authorities.

"They seem to let things slip by unnoticed until they go awry."

Meanwhile, he weighed in on cash-burning state-owned enterprises, saying his office would keep its eyes open to ensure that they did not over-commit to unsustainable levels of debt, in the wake the dire and "quite significant" financial woes at Eskom and SAA.

"All we know is that Eskom’s total debt is somewhere around R400-odd-billion. In our books, we think an amount of that kind is quite significant," he told Business Day.

"It requires quite a lot of people to think about how it must be paid. The same goes for SAA."

The government has been struggling to keep SAA and Eskom operational, with both entities having a combinedoutstanding debt pile of nearly R500bn. The government announced in February that Eskom, which has been described as the biggest single risk to SA’s economy, would receive a record R69bn bailout to be paid over three years.

On Monday, the Public Servants Association called on the PIC to stop investing in the debt of Eskom as this exposed pensioners to excessive risk as the power utility was not selling enough electricity to cover its costs and relied on government bail-outs.

mkentanel@businesslive.co.za