Treasury snafu complicates fines process for dodgy auditors

The Finance Ministry has been forced to re-gazette the maximum fines that can be imposed on auditors and auditing firms for misconduct after the words "per charge" were omitted for two of the sanctions that were promulgated in June 2023.

That seemingly minor oversight has complicated future disciplinary processes of the Independent Regulatory Board for Auditors (IRBA), which will now have to navigate three maximum fines regimes for auditors or audit firms that commit misconduct. 

On 15 June 2023, Finance Minister Enoch Godongwana gazetted new maximum fines for errant auditors and audit firms, which significantly raised the maximum penalties.

Previously, the maximum IRBA could impose for misconduct was R200 000 per charge, regardless of whether it applied to an individual auditor or an audit firm.

The new fines regime, up to R25-million for firms, also outlined different sanctions for auditors and audit firms who admit guilt versus those who don't but are subsequently found guilty.

This was ostensibly to encourage errant auditors and firms to plead guilty rather than undergo an expensive and protracted IRBA disciplinary process. For example, the case of those implicated in the African Bank collapse cost the industry body approximately R60-million and took 67 days, between 2018 and 2020, to reach a conclusion.

However, when the new penalties were gazetted in June 2023, the words "per charge" were omitted for two of the stipulated penalties for those who don't initially plead guilty.

Under the new regime, an individual auditor who admits guilt after being charged with misconduct could potentially pay up to R5-million in penalties per charge, while an audit firm admitting guilt could face fines of up to R15-million per charge.

The words "per charge" were omitted in the sanctions for auditors or firms who don't admit guilt, though they face the prospect of heftier fines of up to R10-million and R25-million respectively. This includes if they plead guilty after the disciplinary process begins, IRBA said.

Due to the omission, an individual or firm facing multiple charges could still potentially receive a more lenient penalty overall by pleading not guilty at the start.

While the Treasury has corrected this by gazetting a notice of withdrawal of the June 2023 maximum fines and issuing a new notice on 5 January 2024, IRBA will now have three regimes to apply depending on when the transgression occurred.

The previous maximum fine of R200 000 per charge will apply for misconduct that occurred before 15 June 2023, the erroneous framework thereafter, while the new framework is expected to be in place from March 2024 onwards.

IRBA says the reason the re-gazetted fines won't apply retrospectively is because legal precedent means newly promulgated laws cannot apply to transgressions that occurred prior to them coming into effect. The audit body says this would be akin to a new speed limit of 50km per hour coming into effect and applying this retrospectively.

"The IRBA will in all cases apply proportionality and scalability when sanctioning in matters of improper conduct, as we have always done," Imre Nagy, IRBA CEO, said in a statement, noting the amounts in the gazettes are just maximum amounts.

"There are varying degrees of improper conduct and not every matter is sanctioned by way of maximum fines," said Nagy, adding there are also non-monetary sanctions available, such as ordering remedial action.

IRBA is a statutory body that falls within the Treasury's mandate. Treasury referred News24 to IRBA when asked for comment.