Zondo: South African Airways, PwC can drag heels no longer

The first part of the report by Chief Justice Raymond Zondo was published on 4 January. It details the results of state capture within SAA and failings in internal controls, record-keeping, as well as management, legal division and company secretary capacity at the company.

The findings and recommendations of the commission will be “immediately implemented throughout all levels of the company,” SAA said in a statement today. “This, it is believed, will foster a culture of transparency, accountability and ethical conduct within the SAA group.”

That begs the question of what would happen in the absence of Zondo. All of the problems identified in the report were uncovered when the auditor-general took over from PwC and joint auditor Nkonki in 2017, so “everything should have been crystal clear to SAA” from that point, says Michael Marchant, head of investigations at Open Secrets, a research and advocacy group in Cape Town.

• SAA was producing handwritten audit materials during the PwC period and team members could go back and change them later, Marchant says.
• Internal controls should have been revamped ahead of the SAA’s operational restart in September, but there is no evidence that they have been, he says. “There is no indication that a great deal has gone into fixing these problems.”
• The company did not respond to a question from The Africa Report asking what steps have been taken over the last five years to address the control and capacity failings identified in the report.

Auditing industry crisis

The Zondo report found that PwC was “either not equipped to assess, or was just not particularly concerned about” the requirements for auditing a public entity. The firm failed to devise audit procedures that were “appropriate to detect corruption or irregular tenders” in major transactions including the Air Chefs tender and the Swissport Ground Handling transaction, it said.

“We are disappointed that the work fell below the professional standards expected of us and that we demand of ourselves,” a spokesperson for PwC told The Africa Report. “While we identified non-compliance with procurement legislation and fruitless and wasteful expenditure,” PwC and joint auditor Nonki “did not include reference to such non-compliance in our audit reports for the 2014 – 2016 financial years as required by the Public Finance Management Act,” PwC said.

• This was a “regrettable and unfortunate oversight.”

That doesn’t start to cover it. Audits are what auditors do. They are not an optional extra like consulting. Audits become more difficult when a company tries to hide things. This was not the problem here. PwC by its own admission identified areas in which SAA was not complying with the law, let alone best practice. The auditor just didn’t think it was worthwhile telling anyone about it.

So the audit opinion – which stakeholders of all kinds need to be able to trust – kept coming back unqualified when there were no grounds for such comfort.

• It’s “completely inexplicable” that experienced auditors at PwC failed to disclose what they had found, Marchant says. The issues had even been flagged by Deloitte in previous years, but somehow fell off the radar, he adds.
• PwC should have taken responsibility for its failures in 2017 and apologised, Marchant adds. “They just dug their heels in until it was inescapable.” The scandals which have already hit Deloitte and KPMG in South Africa mean that there is “a crisis in the auditing industry.”
• The fiasco shows that the auditor-general needs to have a more central role in auditing state-owned enterprises (SOEs) with more money made available, Marchant says.

Bottom line

Foreign investors in South Africa will give up if local auditors fall down on the job.