PwC admits it failed to do its job properly at SAA

Bechard, M (Industry News) Jan 10, 2022

PricewaterhouseCoopers (PwC) has admitted that it dropped the ball in failing to identify corruption at SAA when it audited the company's books between 2012 and 2016.

In part 1 of his report on state capture, Acting Chief Justice Raymond Zondo said PwC and its joint-audit partner, Nkonki Inc, "failed dismally" to detect the rampant fraud and corruption at the national carrier.

He said that if PwC and Nkonki had performed their functions properly, "the shambolic state of financial and risk management in SAA would have been picked up earlier and could have been addressed. It took the intervention of the Auditor-General to finally expose these deep deficiencies."

PwC and Nkonki gave SAA unqualified audits for each of the five years they provided external audit services.

"During this period, the board was in a state of precipitous governance decline. It was also engaging in acts of corruption and fraud. None of this was, however, detected by its auditors. Instead, their audit reports each year conveyed to the public that SAA was complying with the law and that irregular expenditure was under control," Judge Zondo said.

SAA's records and accounting practices were in a "dismal" state when they were taken over by the Auditor-General's (AG's) office for the 2016/17 financial year, Polani Sokombela, a business executive at the AG's office, told the commission.

When the AG took over, the audit opinion changed from an unqualified (which refers to the financial statements) with no material findings (which refers to compliance and performance information) to qualified with findings on compliance with legislation, as well as findings on performance information or predetermined objectives.

The AG found that it could not rely on the previous audit of PwC and Nkonki because there was a lack of supporting documentation, and they could not test how the opening balances had been determined.

'Unfortunate oversight'

In a statement, PwC said it was "disappointed that the work fell below the professional standards expected of us and that we demand of ourselves".

The group said although it had identified non-compliance with procurement legislation and fruitless and wasteful expenditure at SAA, it failed to include these in its audit reports between 2014 and 2016 as required by law.

"The accountable audit partner accepts responsibility for this regrettable and unfortunate oversight and has accepted a monetary sanction from the IRBA (Independent Regulatory Board for Auditors) for this unfortunate oversight."

Irregular spending

PwC and Nkonki were paid more than R69 million in fees for auditing SAA's books between 2013 and 2016. The report said this spending was irregular, because the proper legal processes for their appointment had been followed only for 2012.

Sokombela told the commission that although private audit firms had the same duties as the AG when auditing a public entity, the AG's "specialty" was in ensuring compliance with legislation, regulation and supply chain management processes and policies.

The report said the evidence provided by Pule Mothibe, the audit partner at PwC responsible for the SAA audit for the 2013/14 to 2015/16 financial years, demonstrated that PwC's primary interest was in the financial aspect of the audit and ascertaining whether SAA was a going concern.

"However, it was evident that PwC was either not equipped to assess, or was just not particularly concerned about, the peculiar requirements and obligations attendant on a public entity and ensuring that irregularities that contravened the Public Finance Management Act and other procurement legislation were carefully investigated and reported on."

Last year, IRBA fined Mothile a total of R800 000 for, among other things, failing to disclose material non-compliance with legislation and internal control deficiencies.

Thuto Masasa, a partner at Nkonki and the head of audit from 2016 until the firm closed in 2018, was also fined R800 000.

Briefly discuss three reasons why a control process is vital for PwC. Substantiate your answer.

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