MEC’s auditors fined K3.8m by Malawi Chartered Accountants Institute for serious misconduct in the May 21 elections

By Duncan Mlanjira

Institute of Chartered Accountants (ICAM) has found BDO Chartered Accountants (Malawi) guilty of four counts of serious misconduct in its operations as the retained auditor in the Tripartite Elections held on 21 May, 2019 and has since been fined with K3.8 million.

In the verdict released on February 17, ICAM had been investigating the conduct of BDO Chartered Accountants (Malawi) during the controversial elections following the allegations of professional misconduct that ICAM received from Malawi Congress Party and a Concerned Citizen.

The charges were five — three on negligence, one on lack of professional competence and due care and one on misconduct.

After BDO were duly presented with the charges, the audit firm appeared before ICAM’s Investigations Committee and Disciplinary Committee to present its side of the story held at ICAM Office at Stansfield House along Haile Selassie Road, Blantyre, on 24 September 2019 at which they were given the opportunity to respond to the five charges.

The particulars of the first charge of negligence, which BDO was found guilty of and fined with K1 million, are failure to carry out a risk assessment of the assignment the audit firm was engaged to undertake despite being aware that the assignment was sensitive, of significant public interest and that the stakes were very high.

“Furthermore, the terms of reference had a serious and significant limitation on the scope of the work that threatened the independence of BDO — the firm was not allowed to stop the transmission and processing of the results if they noticed any irregularities,” says the verdict, signed by ICAM president, Bwighane Joel Mwenelupembe and copied to Malawi Congress Party and the unnamed Concerned Citizen.

“The conduct of BDO Chartered Accountants (Malawi) was contrary to Section 2.4 of the ICAM Disciplinary Guidelines as read with Section 113.1 A3 of the IFAC Handbook of Code of Ethics 2018.

“Section 2.4 of the ICAM Disciplinary Guidelines provides that a member is negligent where: ‘Without reasonable cause or excuse, and subject to the proviso to Section 20 (7) of the Public Accountants and Auditors Act, fails to perform any work or duties commonly performed by a registered accountant and auditor with such degree of care and skill as in the opinion of the disciplinary committee may reasonably be expected’.

“Section 113.1 A3 of the IFAC Handbook of Code of Ethics 2018 provides for diligence as follows: ‘Diligence encompasses the responsibility to act in accordance with the requirements of an assignment, carefully, thoroughly and on a timely basis’.

“The ICAM Council considered this matter and found that the absence of the power to stop the transmission and processing of the results where any irregularities are noticed is a serious hinderance in the conduct of such a sensitive exercise of national importance.

“Lack of this power means that the outcome of the exercise will be compromised because of any unresolved irregularities which are allowed to occur alongside the process of auditing the results.

“The absence of the power also erodes the much-needed independence of any auditor in such exercises. The report of the audit would hence be unreliable.”

The second count of negligence, also found guilty of and also fined K1 million for, are that BDO aided a foreign firm, BDO Jordan, to carry out a professional assignment without a special clearance from the Malawi Accountants Board (MAB) and without paying prescribed fees to the Board.

This was contrary to Section 2.29 of ICAM’s Disciplinary Guidelines as read with Section R115.1 of the IFAC Handbook of Code of Ethics 2018.

Section 2.29 of ICAM’s Disciplinary Guidelines prohibits unregistered persons from practising to practice public accounting; aiding or assisting unlicensed persons to practice public accounting.

Section R115.1 of the IFAC Handbook of Code of Ethics 2018 provides that: ‘A professional accountant shall comply with the principle of professional behavior, which requires an accountant to comply with relevant laws and regulations and avoid any conduct that the accountant knows or should know might discredit the profession.

“A professional accountant shall not knowingly engage in any business, occupation or activity that impairs or might impair the integrity, objectivity or good reputation of the profession, and as a result would be incompatible with the fundamental principles’”.

The ICAM Council considers this as a very serious offence and it goes against the root of the existence of having a regulated accounting body of professionals whose conduct is always under scrutiny by the regulator and in such way protecting the public.

The third count of negligence, which ICAM found BDO not guilty of, was that having noted the irregularities during the elections, BDO Chartered Accountants (Malawi) did not report to MAB as reportable irregularities, contrary to Section 2.4 of ICAM’s Disciplinary Guidelines as read with Section R115.1 of the IFAC Handbook of Code of Ethics 2018.

“Section 2.4 of ICAM’s Disciplinary Guidelines requires a member to perform his duties with a degree of care and skill: ‘without reasonable cause or excuse, and subject to the proviso to Section 20 (7) of the Public Accountants and Auditors Act, fails to perform any work or duties commonly performed by a registered accountant and auditor with such degree of care and skill as in the oinion of the disciplinary committee may reasonably be expected’.”

Under Section R115.1 of the IFAC Handbook of Code of Ethics 2018, says ‘a professional accountant shall comply with the principle of professional behavior, which requires an accountant to comply with relevant laws and regulations and avoid any conduct that the accountant knows or should know might discredit the profession.

“A professional accountant shall not knowingly engage in any business, occupation or activity that impairs or might impair the integrity, objectivity or good reputation of the profession, and as a result would be incompatible with the fundamental principles.”

However, ICAM Council found that BDO (Malawi) had taken the necessary steps to inform both Malawi Electoral Commission and United Nations Development Programme (UNDP) about the irregularities the firm had found and therefore BDO were cleared of this charge.

Particulars of the charge of lack of professional competence and due care, which attracted a penalty fine of K1 million, are that BDO (Malawi) did not obtain reference for the junior auditors recruited for the assignment.

The conduct was contrary to Section 2.4 of ICAM’s  Disciplinary Guidelines as read together with Section 113.1 A3 of the IFAC Handbook of Code of Ethics 2018.

It says: ‘Without reasonable cause or excuse, and subject to the proviso to Section 20 (7) of the Public Accountants and Auditors Act, fails to perform any work or duties commonly performed by a registered accountant and auditor with such degree of care and skill as in the opinion of the disciplinary committee may reasonably be expected’.

Section 113.1 A3 of the IFAC Handbook of Code of Ethics 2018 provides that: ‘Diligence encompasses the responsibility to act in accordance with the requirements of an assignment, carefully, thoroughly and on a timely basis’.

“The ICAM Council considered this matter and found that BDO Chartered Accountants (Malawi) were supposed to make sure that the junior auditors it employed were fit and proper for the exercise which was a very sensitive exercise of national importance.

“Employing auditors without reference means that there was always a chance for unfit or improper or insufficiently experienced junior auditors taking part in the said sensitive exercise of national importance, thereby reducing the quality of the work and its product.”

On the charge of misconduct and found guilty of with a fine of K800,000 are that BDO (Malawi) did not have the capacity to carry out the assignment.

“The firm allocated one engagement partner and 16 supervisors against 197 constituencies. There were 5,002 polling stations and there was no single staff at the polling stations from the firm.

“BDO Chartered Accountants (Malawi) responded that it had allocated 1 engagement partner and 16 supervisors against 197 constituencies. The firm had recruited junior auditors 3 days to the start of the assignment.

“It was observed that BDO was constrained with time but proceeded to execute the assignment. The conduct of BDO Chartered Accountants (Malawi) was contrary to Section 2.21 of ICAM’s Disciplinary Guidelines as read together with Section R113.3 of the IFAC Handbook of Code of Ethics 2018.

The Section 2.21 ‘Contravenes or fails to comply with any provision of the Act with which it is his duty to’ and that Section R113.3 of the IFAC Handbook of Code of Ethics 2018 states as follows in terms of limitations inherent in the services or activities:

‘Where appropriate, a professional accountant shall make clients, the employing organization, or other users of the accountant’s professional services or activities, aware of the limitations inherent in the services or activities’.

The ICAM Council observed that IBO (Malawi) should have employed sufficient numbers of staff commensurate with the workload and also bearing in mind the sensitivity of the exercise since the insufficiency of staff rendered the exercise ineffectual.

“In view of the verdicts as per the above, you are being requested to pay the penalties to the Institute by 31 March 2020.

“Please, be reminded that you may appeal against this decision of the Council to MAB within 30 days of this notice,” said the verdict released on Monday, February 17.