African Bank corporate accountability saga drags on
The regulator’s probe into Deloitte has been almost five years in the making — and it’s likely to wrap up only next year
Back in 2014, African Bank Investments Limited imploded after its banking arm, African Bank, was placed in curatorship thanks to a mountain of bad debt.
Its share price tumbled from R28 to just 31c before it was suspended on the JSE; more than 14,000 of its shareholders lost about R2bn in market value on their shares; and, according to the Myburgh report commissioned by the Reserve Bank, four asset managers that were major shareholders lost more than R9.1bn, while their clients lost about R1.5bn in dividends.
Five years on, the disciplinary hearing against the two Deloitte partners responsible for signing off on the bank’s audits is dragging into yet another year — and the outcome is likely to be finalised only next year. It’s been a process marked by delays, finger-pointing and, it would seem, an underestimation of the time and effort required to put this to bed.
The Independent Regulatory Board for Auditors (Irba) started its investigation of the auditing firm — the largest case Irba has handled since it was founded in 2006 — in 2014. By late 2016, it had charged two Deloitte partners with misconduct: 10 counts for Mgcinisihlalo Jordan and one for Danie Crowther. It set aside 20 days for hearings in 2018, starting in March. It’s set to pick up again in mid-2019, with 44 days added to conclude the hearing.
In the meantime, the lives of the partners are on hold. Deloitte says they haven’t worked since they were charged. If found guilty, they could be cautioned, reprimanded or fined; at worst, their right to practise could be temporarily suspended or their registrations as auditors cancelled. Or they could be cleared.
It’s a complicated matter — one that Irba and Deloitte agree is too complicated to rush.
I think it’s unfair for any defendant, whether it’s on a criminal case or a disciplinary hearing, to have to wait so longMurray Dicks
"There are many procedural and other realities to be taken into account," Irba evidence leader Shem Symon said last year. "The evidence runs to tens of thousands of records. There are 10 charges for Jordan alone and some have sub-charges."
But Deloitte has in the past been accused of delaying the process. In March, it applied to postpone hearings set for June/July, saying the case was "not ripe" for hearing. The two sides had not found all the expert witnesses they needed.
Then, when the hearing adjourned in December, Symon repeated the accusation about Deloitte’s delays, saying it was the auditing firm that had not wanted to start proceedings until August 2017.
But Deloitte has rejected the suggestion that it has held up the matter, saying it is frustrated by the slow pace of the hearing.
"I think it’s unfair for any defendant, whether it’s on a criminal case or a disciplinary hearing, to have to wait so long to get a judgment of some sort," Deloitte reputation and risk leader Murray Dicks said last year. "Any suggestion that we are delaying this matter, we reject. There is no benefit to Jordan and Crowther having their lives put on hold for years."
Deloitte has further accused the watchdog of rejecting its case-management approach, which it says would have shortened the process significantly.
"We recommended that approach in July 2017 and it was rejected out of hand by Irba. We didn’t even get together in a room. The regulator was not interested in any suggestion from us in principle. And then it forced the matter to start in March before it was ripe and ready to start," said Dicks.
However, Irba CEO Bernard Agulhas said the regulator’s legal team participated in several case-management meetings for the African Bank hearing. He said it repeatedly asked that the hearing be completed before the end of 2018, under pressure from parliament and the Irba board.
What it means
It could take six years for shareholders to find out if Deloitte is guilty of anything
When the disciplinary hearing resumed in September, only one Irba witness took the stand. Given that Jordan’s factual statement alone is 3,989 pages and Crowther’s runs to 207, it took Irba’s investigator 18½ of the 20 days set aside just to deliver the evidence supporting Irba’s charges.
The regulator still needs to call four expert witnesses to make its case, and Deloitte, which has yet to present its own side, has barely cross-examined Irba’s first witness. The company itself has a long list of witnesses, with one coming from Switzerland and another from the UK.
The hearing has now been put on hold until July to accommodate the schedules of all committee members and legal teams.
But after a break of six months, it’s possible that more time will be lost rehashing the evidence presented last year. So it could take six years for shareholders to find out if Deloitte is guilty of anything.
There’s another issue: the Deloitte disciplinary is likely to be a curtain raiser for Irba’s next big case — Steinhoff. The regulator said last year that it would be investigating Deloitte’s role in auditing the 2012-2016 financial statements of the retailer. In the interests of corporate accountability, that will hopefully be a less drawn-out affair.