Auditing mishaps dent BDO’s credibility

BDO did not challenge Chinamora’s points when shredding apart the report, but argued that it was a private organisation whose work could not be reviewed.

When former National Social Security Authority (NSSA) chairperson Robin Vela took BDO Zimbabwe Chartered Accountants to court, it was tempting to assume that his were actions of a desperate man trying to cleanse himself.

But another complaint by First Mutual Holdings Ltd (FMHL) has raised fresh questions about the accounting firm’s integrity.

In 2020, Vela dragged BDO to court over an audit report on NSSA, which portrayed him in  bad light during his tenure at the authority.

In Vela’s view, the forensic audit showed a lack of competence, contained false information, was riddled with bias, and besmirched his reputation.

He argued that BDO was not fit to conduct the forensic audit, not only because it lacked the professional qualifications to perform that specialised function, but also because it was biased and lacked the impartiality and fairness required for that task.

Before BDO was engaged by the Auditor General’s office to audit NSSA investments, objections over the involvement of Ngoni Kudenga, the auditing firm’s managing partner, were raised based on a previous relationship with the potential to threaten the conduct of the forensic audit.

The forensic audit only resumed after Kudenga was supposedly cleared, with the firm also claiming he had stepped down from the exercise.

Vela raised serious concerns over bias or lack of objectivity as defined in subsection 112 of the IESBA Professional Code of Ethics, a failure to verify observations with corporate governance structures of NSSA as well as failure by BDO to make any reference to or use of section 14(3) of the Public Finance Management Act (Cap 22:19) in the report.

Kudenga was listed as the first respondent and his partner, Gilbert Gwatiringa was the second respondent.

High Court judge Justice Webster Chinamora rubbished the audit report and ordered its review, but BDO challenged it at the Supreme Court.

BDO did not challenge Chinamora’s points when shredding apart the report, but argued that it was a private organisation whose work could not be reviewed.

The superior court, albeit under controversial circumstances, overturned the High Court decision arguing that the audit firm was not an administrative authority and, therefore, its report could not be reviewed.

A detailed critique of the judgment was made by the late Alex Magaisa in his Big Saturday Read under the link:

Magaisa said a request for review is not only based on a lack of procedural, but substantive fairness.

He said what was supposed to be reviewed was the AG’s function, not BDO Zimbabwe’s and because of this, under the new constitutional scheme, the conduct of private contractors is reviewable if it is performing a function of a public nature.  

Vela has since approached the Constitutional Court, citing a violation of his rights, and the matter is still pending.

But before the Vela case has gathered dust, BDO is now caught in the eye of another storm.

This time, it is FMHL complaining about yet another forensic audit, which the insurance company is challenging.

FMHL has disagreed with the findings in the audit report produced by BDO and the resultant corrective order by the regulator, the Insurance and Pensions Commission (Ipec), which claimed that its submissions “were not properly considered”.

Early this year, FMHL announced that it had received an order for corrective measures from Ipec over its alleged defiance of the law on the separation of insurance and pension businesses.

 Ipec had ordered a forensic investigation into the affairs of First Mutual Limited (FML), a subsidiary of FMHL, over its failure to separate shareholders’ and policyholders’ assets.

FMHL has already announced that it would go to court to challenge the BDO report, a development that is likely going to raise questions about the professional integrity of the audit firm.

BDO, last month issued a statement claiming there was no relationship between the Vela and FMHL cases while claiming that the response was to clear the air following media reports that cast doubt on its integrity concerning the FMHL saga.

“We were engaged by Ipec to carry out a forensic audit on First Mutual Life Assurance Company (Private) Limited (FML) to address specific terms of reference that were given to us,” part of the statement read.

“We deployed a team, which had the requisite technical expertise and experience and worked with a firm of actuaries specifically contracted for this assignment.

“We produced a report, which we submitted to and was accepted by Ipec.”

The statement added: “Reporters have been seeking to maliciously relate the recent issue concerning the FML assignment to the issue brought against us by Robin Vela.

“The two issues have absolutely no connection.”

BDO said Vela went to court and simultaneously lodged a complaint to the Institute of Chartered Accountants of Zimbabwe (ICAZ) against Gwatiriga, the partner who oversaw the NSSA assignment and the managing partner, Kudenga.

“The High Court ruled in favour of Vela, and we appealed to the Supreme Court, which ruled in our favour on the grounds that BDO was not a public administrative authority and, hence had not exercised public power as had been asserted by Vela,” the statement read.

“Vela has now approached the Constitutional Court and judgment is pending.”

 The accounting firm said it also cleared ICAZ whose disciplinary process on October 4, 2021, quashed Vela’s complaints.

Kudenga is a former ICAZ president.However, what was surprising was that ICAZ neither invited Vela as a witness nor sought his assistance in the prosecution of the complaint in question, the minutes of the proceedings show. This raised questions about whether the process was not a farcical exhibition and a charade calculated to clear the accounting firm.

The ICAZ judgment came after Chinamora’s ruling, which concluded that the BDO’s audit report on NSSA was a scandal.

“As I have found that the investigation leading to the report was biased and that the auditors did not apply their minds to issues before them, I do not propose to deal in detail with the other grounds raised by the applicant,” the judge observed.

 “It is worth emphasising that the inaccuracies in the report speak to the failure to apply one’s mind to the issues for determination before it.”

Chinamora added: “The record shows that it was within its power to eliminate some of the failures, which undermined the applicant’s rights.”

Vela had explained that BDO acted unfairly, ignoring incidents of abuse at NSSA by former Public Service ministers Petronella Kadonye and Patrick Zhuwao.

The accounting firm also implicated Vela in things that happened before he joined NSSA.

“For example, the period the applicant joined the NSSA board could have been easily verified from the information in its possession,” Chinamora said.

 “Again, it would not have been difficult to consider the answers given by the applicant and provide reasons for discounting them.

 “In respect of the alleged financial improprieties of ministers Kagonye and Zhuwao, the court is not convinced by the reason given for not confronting them in the report.

“It is evident to me that they fell within the second respondent’s brief, but were unexplainably avoided.

“BDO also sent very hostile questions to Vela, exposing their bias and went on to ignore his responses without reason.

“Reasons ought to have been advanced on why Kudenga rejected the responses given by Vela in the questionnaire they sent him,” the judge ruled.

“In other words, if the decision has been made in ignorance of the facts material to that decision or not considering relevant material, such a decision is reviewable.

“Assuming that the second respondent chose to reject the position put across by the applicant in the questionnaire, at the very least, reasons ought to have been given for such a stance.”

Chinamora added: “Also worth mentioning is that the apparent out-of-hand rejection of the applicant’s answers in the questionnaire effectively means that he was denied the right to be heard in violation of the rights guaranteed by section 3 of the AJA.

“In this respect, Patel JA succinctly explained what constitutes acting in a fair manner in Attorney-General v Leopold Mudisi & Ors SC 48-15.”

Investment analyst Enock Rukarwa said BDO continues to be mired in controversies around the disputation of its audit findings will generate a confidence deficit in the brand.

 Another observer said the disputation seems to suggest that BDO produces political, rather than auditing reports and this could be dangerous for the company in the long run.

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