The biscuit maker, the big shot auditor and the SAA cover-up

The disciplinary hearing of a director of the Institute of Internal Auditors of South Africa (IIA SA) has raised further questions about the role auditors play in covering up wrongdoing in state-owned enterprises and put the processes of the IIA SA under the spotlight.

It all started with an SAA tender for dry snacks.

Robert Newsome, director of the IIA SA and chair of its disciplinary committee appeared before a disciplinary committee of the South African Institute of Chartered Accountants (Saica) on Friday on a charge of failure to declare a conflict of interest as chair of the disciplinary committee of the IIA SA.

Newsome earlier served on the Independent Regulatory Board of Auditors (Irba) and represented the industry at international level, including on structures dealing with ethics.

Moneyweb attended the Saica hearing, but Saica denied it access to any of the relevant documents.

The matter stems from a tender issued by SAA subsidiary Air Chefs in April 2013 for dry snacks, including savoury biscuits.

Biscuit manufacturer Mantelli’s submitted a bid and was subsequently notified in a letter signed by then acting CEO of Air Chefs, Martin Kemp that Mantelli’s was awarded the tender. The contract would be worth about R5 million per annum for three years, Mantelli’s CEO Simon Mantell testified on Friday.

When Mantell approached Air Chefs for the conclusion of a supplier agreement as the first step to implement the award, he was told that it was no longer a tender, but in fact the award for inclusion on a panel of suppliers that would get contracts as and when needed. That was contrary to the tender advertisement and was the first time a panel was mentioned.

Mantell objected to then SAA CEO Monwabisi Kalawe who instructed SAA’s internal audit executive Siya Vilakazi to review the procurement process.

Vilakazi, in May 2014, found that the process was fair, equitable, competitive, cost effective and transparent and complied with provisions of the Public Finance Management Act (PFMA).

Subsequently, an investigation by Indyebo Consulting raised serious concerns about the process. National Treasury found the process fraught with flaws, contravened the PFMA and instructed SAA to award some categories of biscuit orders with Mantelli’s in an effort to remedy the situation.

SAA, in late 2014, appointed Outsourced Risk and Compliance Assessment (ORCA) to do a quality assurance of the SAA internal audit, headed by Vilakazi.

Vilakazi later issued a glowing letter of reference to the directors of ORCA confirming the excellent work that ORCA does, its good rates and confirmed that ORCA was on a panel of suppliers to SAA.

Based on the contradiction between Vilakazi’s findings and that of National Treasury Mantell laid a complaint against Vilakazi at the IIA SA.

Despite having been provided with the reports of National Treasury and Indyebo, the investigating committee recommended that the disciplinary committee pursue only one charge, namely that Vilakazi failed to obtain a legal opinion before he concluded that the award to Mantelli’s was not legally binding.

Vilikazi admitted to the investigating committee that he failed to get a legal opinion.

At a meeting on June 27 2016 the disciplinary committee chaired by Newsome resolved to charge Vilakazi.

A few days later, on August, 1 Newsome was appointed a director of ORCA, the company that quality assured Vilakazi’s internal audit department’s work.

At the time ORCA was doing Mango’s internal audit. Mango is another SAA subsidiary and was ORCA’s biggest client at the time.

During the Saica hearing Newsome confirmed that IIA SA CEO Claudelle von Eck raised a possible conflict of interest with him, which he dismissed. He argued that the quality assurance of Vilakazi’s department’s work was done before he joined ORCA and was therefore irrelevant. The Mango contract came to an end four months after he joined ORCA. At the time it was known that it would end and therefore there was no conflict, he stated.

Newsome further stated that ORCA being on an SAA supplier panel did not mean ORCA was automatically granted any work. He denied any real or perceived conflict of interest and maintained there was nothing wrong with his failure to declare his links with ORCA to the disciplinary committee.

Newsome further maintained that such declaration would not have made any difference to the outcome of the IIA SA disciplinary process and accused Mantell of having a vendetta. He said the fact that the IIA SA kept him on as chair of the disciplinary committee and director demonstrates the body’s support for his conduct.

Four months after Newsome joined ORCA, the IIA SA disciplinary hearing discussed correspondence and representations Vilakazi made to the disciplinary committee.

They were concerned about the authenticity of the working papers he supplied at that stage. Other committee members argued that the matter should proceed to a disciplinary hearing, but Newsome, as chairperson according to his own evidence on Friday, suggested that SAA legal provides an affidavit confirming whether it provided Vilakazi with the required legal opinion or not.

According to the minutes of the meeting he in fact suggested an affidavit from Vilakazi, but Newsome said during the hearing the minutes might be wrong.

At a disciplinary committee meeting on March 29 2017 the IIA SA staff told the committee that it received an affidavit from Vilakazi (not SAA legal). Newsome admitted that the committee did not see the affidavit, but decided to close the matter as they “had no reason not to trust” the IIA SA officials, including the CEO.

He maintained in the hearing that he did see the affidavit before writing to Mantell on behalf of the committee a few days days later confirming there was insufficient evidence and the matter was closed. He could not confirm that other members of the disciplinary committee ever saw the affidavit.

Moneyweb has not seen the affidavit, as Saica refused it access to it. According to testimony on Friday Vilakazi, among other things, admitted to throwing away his “inadequate” working papers on the Mantelli’s matter and replacing it two years later, but backdated it to give “an impression that extra work was done which was not the case”.

During the hearing it was clear that Newsome was extremely irritated by being dragged to a Saica disciplinary hearing. At one stage he refused to answer questions from Saica’s legal representative and when she put it to him that he was not completely honest, he exploded: “How dare you!”

He later apologised for being emotional, but maintained that he couldn’t believe Saica was entertaining the complaint. He described how Mantell pestered IIA SA and others, even “dragging the Hawks into Air Chefs!”

Saica asked the panel to suspend Newsome’s membership and bar him from re-applying for five years. It further asked that he be ordered to contribute R100 000 to Saica’s legal costs.

Newsome on the other hand said the “worst” Saica could do was to issue some kind of letter (of reprimand).

The panel reserved judgement.

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