The accountants’ professional watchdog ICPAK has opened investigations into the Sh879.1 million accounting fraud at Nairobi-based manufacturing firm Haco Tiger Brands, putting the careers of sacked senior managers at risk.
ICPAK [the Institute of Certified Public Accountants of Kenya] said on Tuesday it was pursuing former Haco Tiger Brands managing director Geoffrey Kiarie and consultancy firm PricewaterhouseCoopers (PwC) over the accounting scandal that South Africa’s Tiger Brands, the majority owner of Haco, exposed last week.
The alleged profit manipulation at Haco Industries caused the ouster of Mr Kiarie, who is a professional accountant.
ICPAK said on Tuesday that it had been in touch with Haco’s new finance director, Stephen Gakure, over the scandal — the latest to hit Kenya’s accounting fraternity.
The watchdog is investigating Mr Kiarie’s involvement in the scam and accounting firm PwC’s failure to detect the huge and illegal financial adjustments. PwC was Haco’s external auditor.
The Haco accounting scandal is the latest to hit PwC and comes nearly 10 years after the firm found itself in a tight spot for the 2006 collapse of Uchumi Supermarkets. ICPAK said the investigations are to find out whether PwC’s opinion on Haco’s finances was in step with professional standards.
If found culpable, the watchdog could hit Mr Kiarie (who is one of its 15,000 members) and PwC with a fine of up to Sh150,000, suspension or ejection from the association.
“Our audit and quality assurance team has commenced investigations into the allegations. This will include visiting Haco offices in the coming days,” Patrick Ngumi, ICPAK’s chief executive officer, said.
“If we establish that any of our members was party to the crime, we shall have them appear in front of our disciplinary committee.”
Mr Gakure, who took up the newly-created position on of finance director on December 1, 2014, is also set to be questioned over the matter despite his short stint in the firm.
PwC on Tuesday declined to comment on the matter insisting that it would be in breach of professional conduct to discuss matters concerning its clients.
South Africa’s Tiger Brands bought a 51 per cent stake in Haco Industries from billionaire businessman Chris Kirubi in 2008 for an undisclosed amount, leaving him with a 49 per cent stake.
Haco Tiger Brands produces and markets fast moving consumer goods such as Ace, BIC, Jeyes, Miadi, Motions, TCB, Bloo and SoSoft.
Mr Kiarie, who was sacked as Haco Tiger Brands managing director in December, is accused of knowingly participating in profit manipulation and pre-invoicing to inflate the company’s earnings in pursuit of hefty bonuses.
He and four others, who have since been dismissed, are said to have moved stock that was yet to be sold to third-party warehouses to make it appear as if full-year performance targets had been achieved.
Peter Matlare, Tiger Brands’ CEO, said adjusting for the actions caused the group’s operating income to decline five per cent to Sh13 billion, wiping out a seven per cent growth in turnover to Sh129.4 billion for the six months to March.
“They were key executives right at the top; both external and internal auditors failed to pick up the irregularities,” Mr Matlare said in Johannesburg during last week’s release of the company’s half-year results.
“They have been judged to be one of the best performing in a number of key areas. For example, in our Bic business, two and a half years ago, they were globally in the top three and got some fantastic rewards.”
ICPAK’s decision to investigate the matter compounds Mr Kiarie’s woes after Haco Tiger Brands chairman Chris Kirubi said the firm’s lawyers were preparing to take the sacked MD to court to face civil charges relating to the scandal.
Tiger Brands, which has subsidiaries in Cameroon, Kenya, Ethiopia, Nigeria, and Zimbabwe, on Monday released a statement absolving Mr Kirubi of any wrongdoing.
“It is essential to note that Mr Kirubi, as chairman of the company, has assisted in the guidance of these processes and has had no role to play whatsoever in any inappropriate activity,” said Mr Matlare.
“We hold Mr Kirubi in high regard and respect his achievements, reputation, integrity and ethical approach to business.”
ICPAK’s disciplinary actions potentially have career-limiting implications on Mr Kiarie, who has previously worked at Coca Cola Sabco Tanzania as country finance manager.
“If we find him culpable of profit manipulation, the association shall either fine, suspend or excommunicate him,” said Dr Ngumi, adding that current fines are too lenient and are about to be enhanced.
“The decision we make shall be made public through our website and in our accountants journal. This has severe repercussions in terms of employment opportunities.”
Investigations into PwC’s involvement in the Haco scandal come at a time when audit firms are under fire for alleged involvement in or covering up manipulation of accounts at Kenyan firms.
Deloitte & Touche, another of the big accounting firms, has been on the spot over alleged accounting irregularities at sugar miller Mumias, car dealer CMC Holdings, Dubai Bank as well as Tuskys Supermarkets.
Ernst & Young, who was appointed auditor of the East African Portland Cement (EAPCC) in the year to June 2013, has also been accused of covering up financial irregularities at the Athi River-based firm.
“The ICPAK team has been in touch with PwC and individuals who were directly involved with auditing at Haco Tiger Brands,” said Dr Ngumi.
“We shall, in the course of this week, summon these individuals to give their version of events.”
ICPAK’s disciplinary team has dealt with more than 20 cases in the past two years and currently has six active cases under investigation.
The institute is currently seeking to enhance the punishment for rogue auditors, arguing that the Sh150,000 penalty is too lenient.
Proposed amendments to the Accountants Act include setting the minimum fines at Sh5 million for individuals and five per cent of revenue for audit firms found culpable of gross negligence.
The proposed revisions to the accounting law will see convicted accountants and audit partners who sign off cooked financial statements have their practising licences revoked for 10 years.
ICPAK said fixing fines at five per cent of audit firms’ turnover is targeted at reining in the Big Four — Deloitte, Ernst & Young, PwC and KPMG — for whom the current fines are a slap on the wrist.