The failure of the system is not because of the external auditors – Manuel

2017-10-05 14:46

The government’s financial metrics were deeply concerning and the country could be facing a “very difficult situation”, former finance minister and Old Mutual chairperson Trevor Manuel said this week.

He was responding to a question from a member of the audience at a Deloitte conference in Johannesburg about whether South Africa was headed for a Washington DC, IMF bailout – whether things were “as dire as that”.

“That is a fundamental, important question – but it is a very difficult question,” Manuel said.

“I’m deeply concerned about the metrics – if I look at the upward trend of the deficit. I look at the gap and yawning chasm on the revenue side – then I think we are facing a very difficult situation.

“I’m exceedingly worried about debt service costs. About the desperation we are seeing. I would like to understand on October 25 how the special appropriation bill for SAA will be funded.

“We approach, unlike previous eras, the October 25, when the medium term budgetary policy statement will delivered in Parliament, with a degree of trepidation. [There has been] so much negative news and so little reassurance. Therefore it is hard to make decisions.”

In history and embedded in our liberation DNA, Manuel said, was the fact that South Africa wasn’t going to knock on the door of the IMF for a stay by facility because it would limit the country’s sovereignty.

“I don’t know if those issues are still in the mix of the calculus used because it is political rather than purely economic.”

On the topic of KPMG, Manual said: “Since [the failure of] Arthur Andersen, the world has been down to four [major auditing firms]. The topic on everyone’s lips in South Africa is: will we go down to three? My personal view, just to put it on the table, is that it would be a profound tragedy for risk going forward.

“It’s not a very happy situation – I don’t think the crisis is terminal.”

Manuel said that the World Economic Forum used to rate South Africa very highly for audit quality.

“Last year they rated us number one but this year that rated us 30th. That’s a very high speed of transformation,” he added.

“The focus should be less on the external auditors but it must start with the financial management of any company.

“Looked at the last few annual reports of a number of state owned organisations – and I’ve see the sign offs – and I can’t believe that people sign off ... The failure of the system is not because of the external auditors.

“In any partnership, if you lose the top nine people as KPMG has done and with it probably a collective 400 years or so of experience of the profession – it is a big decision. My own sense is that we got to cut them some slack and support a process that must be about a new beginning.”

Part of what South Africa needs to do, he said, is turn to the profession and say: we need a healing process – this is a crisis for us.

“We need to ensure that there isn’t a further decline in trust.”

On the issue of state-owned companies, Manuel said the rot was “so deep” in these entities.

“I don’t know many private sector companies where the board of non-executive directors form a tender committee to allocate the spoils. But is has become de rigueur for our state-owned companies to deal with issues that you reconstruct boards to focus on the norms of corporate governance.”

Turning to SAA, Manuel said that there were some big decisions that were about management “that you not going to resolve by pouring more money into it”.

“Maybe the biggest problem that we face is that its cost structure is too high. It employs too many people and pay scales are way out of kilter with industry norms. Unless they can deal with that – nothing else will work.

“These are big decisions that you can’t defer. That been deferred for too long. There are other issues that appear self evident. Like the board ... when the chairperson [Dudu Myeni] of the board misses six consecutive meetings and she remains the chairperson.”

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March 18 2018