PricewaterhouseCoopers (PwC) auditor Pule Mothibe on Thursday conceded in testimony at the commission of inquiry into state capture that the audit firm, and its partner at the time, Nkonki, failed to elevate deviations it had identified at South African Airways (SAA) between 2014 to 2016 to its audit reports.
Mothibe told the chairperson of the commission, Deputy Chief Justice Raymond Zondo that the two firms did, however, notify SAA’s management “and those charged with governance” – the audit committee – at the airline of these deviations, adding that PwC accepts that these, however, should have been elevated to the audit reports.
“We did not complete the final step hence the concession we made in that supplementary statement [submitted to the commission],” Mothibe told Zondo.
Evidence leader at the commission advocate Kate Hofmeyr pointed out that this concession was only made this year before a business executive at the auditor-general of South Africa (AGSA), Polani Sokombela, testified at the commission about the mess the AGSA found at SAA in the 2016/2017 financial year when it took over the auditing of the airline from PwC and Nkonki.
Mothibe said he would have to “wrap his mind around” whether the failure to report issues of non-compliance in the firms’ audit reports was a dereliction of duty, only accepting Zondo’s definition that it was an “omission of duty”.
He accepted that the audit opinions would be incorrect if these issues were not included in the audit reports.
Mothibe told the commission that he could not deal in testimony with the appointment of the two firms as SAA auditors on a basis of an appointment letter that stated the contract would run for a year, as it predates his time at the PwC.
Following their appointment, the two firms were appointed for an additional four years without procurement processes being followed, the commission heard, which Mothibe said PwC took comfort in the fact that the AGSA had given concurrence for these appointments and approval was given at the SAA’s annual general meetings.
In the 2012/2013 financial year, the PwC and Nkonki auditing contract at SAA was extended, costing around R16 million, however, the procurement processes to appoint the firms had only been followed in the previous financial year, the commission heard.
Hofmeyr read the minutes of the SAA’s board adjudicating committee (BAC) dated 7 December 2012 that noted that “normal and defined” procedures had not been followed to reappoint the two firms as auditors.
Mothibe accepted that if one reads the BAC’s December 2012 minutes, the costs incurred for the reappointment of the two firms would amount to irregular expenditure.
Hofmeyr told the commission that this irregular expenditure which was not disclosed in SAA’s financial statements from 2013 to 2016 amounts to about R69 760 888.
The commission also dealt with the association PwC had with Kwinana and Associates, an auditing firm owned by former SAA non-executive director Yakhe Kwinana, who was also the chair of SAA’s audit and risk committee.
PwC had bid for three tenders with Kwinana and Associates, two of which were unsuccessful, the commission heard.
The successful tender was for asset verification work to be done for the Passenger Rail Agency of South Africa (Prasa), which PwC entered into with Kwinana’s firm through its subsidiary, Combined Systems, which Mothibe said it has since disposed of.
Kwinana and Associates received a payment of just over R6 million in total from PwC for the work it had done, the commission heard.
Mothibe conceded at the commission that Combined Systems did not follow due process before entering into a relationship with Kwinana and Associates, a matter he said he came to know of as he was preparing for his testimony at the commission.
The commission continues, watch live courtesy of the SABC: