Professional Service Industries: Facilitating Malfeasance For A Fee IV - The Next Steps For Professions

This brief series looks at four professional services industries - law, auditing, accounting, and management consulting - and the role that they play in facilitating corruption and malfeasance.
Professional Service Industries: Facilitating Malfeasance For A Fee IV - The Next Steps For Professions

This brief is the fourth of four considering the role of lawyers, auditors, accountants, and management consultants in facilitating corruption. The first explored the roots of the concept of “professionalism”. The second considered the constraints, or lack of them, on professional behaviour. The third brief discussed instances of malfeasance by members of these professions. This brief will consider potential next steps for professions to guard against further misconduct.

Work to be done

The past three briefs in this series have shown that professionals do not always observe the highest standards of lawfulness and ethics, and argued that lawyers, auditors, accountants and management consultants need to be kept in check. The questions that follow are – who is responsible to do this? And how?

This brief will consider what various role players – regulators, firms, individual professionals, and clients – can do to curb professional misconduct, while highlighting some key points regarding the effectiveness of certain types of sanctions.

The who and how


Could regulators – that is, those responsible for overseeing professions, whether professional associations or creatures of statute – have been more active? The many instances of professional involvement in corruption described in the third brief reveal that even where regulatory bodies do exist, they usually act only in response to malfeasance. In many cases, it was only after the impugned conduct was exposed through the work of the media and other civil society actors that regulatory bodies became involved.[i] One explanation for this may be that regulators are constrained by the mandate set out in legislation or constitutive documents. This may require that a complaint be lodged before an investigation can be initiated.

This is not a constraint that applies to the Independent Regulatory Board for Auditors (IRBA), however. Section 48 of the Auditing Professions Act[ii] (Act) provides that where IRBA reasonably suspects that an auditor has committed an act that may render her guilty of improper conduct, it must refer the matter to the investigating committee. In addition, section 47 grants IRBA powers to inspect or review the practices of registered auditors – and provides that auditors of public companies must be inspected at least every three years. IRBA is entitled to make copies of information held by the auditor, and the costs of the inspection can be recovered from the auditor. The Act also obliges other “appropriate regulators” to send reports detailing prima facie proof of improper conduct to IRBA. IRBA can even require registered auditors to submit returns or information on an annual basis.

Given these significant powers, it makes sense to question how IRBA was not able to detect the untoward activities at KPMG and others before extensive damage was done. IRBA has made reference to the difficulties it faces when auditors under investigation refuse to cooperate when asked to provide information.[iii] This may have formed part of the reasoning of calls to reform the Act to give IRBA search and seizure powers. The amendment process was put on hold prior to the May 2019 election; it remains to see whether it will be taken up anew by the sixth Parliament.[iv]

IRBA also recently commented on the fact that auditors “come in a little late” and have to rely on documentation prepared by clients. It was reported[v] that:

To address the expectation gap, IRBA is considering whether to expand the competency requirements of auditors. Also, because there are multiple lines of defense, including management controls and internal audits, the regulator also plans to give South Africa’s finance minister a model for so-called comprehensive regulation within weeks. This would include oversight through the financial reporting chain and may include audit committee members and chief financial officers.

Ultimately, it is for the regulators to account for their inability to stand in the way of the grand-scale acts of malfeasance observed in the third brief in this series. While they may be constrained in various ways in detecting and responding to misconduct, there are some proactive steps that can be taken to prevent misconduct from arising in the first place. Some suggestions include:

  • Requiring ethics education as a core component of training prior to admission to the profession. This is already a requirement for certain professions.[vi] Ethical conduct should also form part of ongoing training and continuing professional development.
  • Making ethics consulting services available to members who may be in need of impartial advice when faced with an ethical conflict.
  • Providing whistle-blowing mechanisms. Sometimes the people best placed to uncover abuse are colleagues, suppliers, and clients of professionals. These people may not be in a position to make formal complaints. Avenues to blow the whistle with some degree of protection (which may include anonymity) should be made available.


Firms of professionals cannot simply plead ignorance when it comes to corruption. When professionals organise themselves into a firm, they become at least partly responsible for their collective conduct. The public is right to be critical of firms such as Hogan Lovells who, when implicated in corruption, react with defensiveness, cries of victimisation[vii], and expressions of shock and disbelief.[viii] Firms ought to know better – and know the people who represent them better. After all, it is good business sense to maintain an untarnished reputation. There are strategies that can be used to enhance accountability of professional services firms.

One regulatory intervention that could be used is for codes of conduct to clearly state that they binding on firms as well as individual practitioners. This is the case in the legal profession.[ix] Law firms can be subject to disciplinary proceedings and face sanctions such as payments of compensation or fines.[x] The disciplinary committee can even advise that the Council apply to the High Court to wind up the juristic entity.[xi] This sanction is severe and would likely only apply in the most egregious circumstances.

It is imperative that firms have a whistle-blowing policy in place. The Protected Disclosures Act[xii] creates an obligation on employers to create internal procedures for receiving and dealing with disclosures and to take reasonable steps to make these known to their employees. These procedures give a voice to professionals within firms to raise concerns about impropriety – even if committed by others within the firm – while still enjoying protection under the law.

Firms are in control of their corporate culture, and the tone is set from the top. Those in management roles must promote a culture of ethics, in both word and action. This may, at times, involve refusing work where the nature of the instruction or the client suggests impropriety is at play. Short-term monetary gain must be weighed up against the potentially disastrous consequences.

Given the fallout experienced by firms implicated in state capture and corruption over the past few years, all professional services firms should consider themselves on notice to re-examine their policies and procedures to make sure that they do not find themselves in a similar position.

Individual professionals

Professionals themselves have two very obvious duties when they discover malfeasance. The first is – of course – not to participate in it themselves. The second is to report it. The manner and procedure of reporting is usually determined by applicable codes of conduct.

Professional associations should have a code of conduct that describe how to report wrongdoing. For example, the Code of Professional Conduct for the South African Institute of Chartered Accountants contains extensive guidance setting out what chartered accountants should do when they discover non-compliance with laws and regulations by their clients.[xiii] This approach is more helpful than the mere statement of a rule which is then left to the professional’s understanding and interpretation. All codes of conduct should include detailed information on how to go about reporting wrongdoing across a range of categories, whether committed by clients, firms, or other professionals. It should also include information as to what is not covered by the code of conduct, such as employment disputes.

If professional associations have no such rules, individual professionals should refer to their own firm’s procedures. Management consultants, for example, should have internal policies that apply in the absence of any industry-wide regulation. Reporting in accordance with internal procedures is also important to ensure protection under the Protected Disclosures Act is maintained.

There are circumstances where an individual’s disclosure can still be protected even if she does not go through her employer’s internal procedures. These include that she has reason to believe she will be subjected to an occupational detriment after making the disclosure, suspects that evidence will be destroyed, or that she has made the disclosure before and no action has been taken after a reasonable period of time.

Every professional has avenues available to them when they are confronted with malfeasance. They would do well to consistently re-orientate themselves with the roots of professionalism, which includes providing a service that is a public good. Furthering corruption and misconduct brings detriment not only to themselves, but to their profession as a whole.


But, as this brief series has shown, professionals do not always act in the public good. If they are caught and found guilty, consequences must follow in the form of sanctions.

Regulators established by law often have a range of prescribed sanctions at their disposal. For instance, in the case of the law profession, if the Legal Practice Council (Council) makes a finding of misconduct, then an appropriate sentence will be passed after considering arguments in mitigation (or aggravation) of sentence. Sanctions that may be applied range from a caution to the payment of compensation to the complainant or a fine to the Council. It could also include the temporary suspension of practice pending application to the High Court for an order striking the practitioner from the roll, suspending him or her from practice, or interdicting him or her from dealing with trust money. Sanctions can also be applied against juristic entities such as law firms.

The Auditing Professions Act lists potential sanctions as including the issuing of cautions, the imposition of fines, the suspension of the auditor’s right to practice or the cancellation of the auditor’s registration and removal of his or her name from the register of auditors.

Professional associations’ options may be more limited regarding sanctions, with the most severe forms usually being removal of accreditation issued by that association or exclusion from membership. The by-laws of the South African Institute of Professional Accountants[xiv], for example, provide that a member may be excluded if convicted of a crime or removed from an office of trust on account of misconduct. Other potential sanctions include warnings, financial penalties, suspension or withdrawal of certificates, licenses, or permits or exclusion from membership.

The threat of exclusion or withdrawal of accreditation can be a strong disincentive against misconduct, particularly if the professional is no longer entitled to practise, as it removes their source of income. In the auditing profession, a high-profile example was made of Jaques Wessels, formerly of KPMG, who was de-registered as an auditor following a disciplinary inquiry into his conduct regarding audits performed on a Gupta-linked company.[xv]

Some codes of conduct do permit readmission to the profession following a prescribed procedure: in the case of legal practitioners, this is done by application to the High Court. The Court has the discretion whether to refuse or grant the application, and will take into consideration factors such as whether the applicant has genuinely and permanently reformed, whether the defect in character that led to her being struck off the roll no longer applies, and if the applicant is readmitted, whether she will conduct herself as an honourable member of the profession.[xvi]

Professionals can, of course, also be held criminally liable should they engage in conduct that is prohibited by law, such as the Prevention and Combatting of Corrupt Activities Act[xvii] or the Prevention of Organised Crime Act.[xviii] As discussed in the second brief of this series, criminal liability may also follow from contraventions of the Companies Act.[xix]

What about reputational damage? This is a consequence of becoming embroiled in allegations of malfeasance. Threats to a professional’s reputation can act as a deterrent. One needs to look no further than KPMG as an example of this: in the fallout following its state-capture linked scandals, it lost twenty of its clients.[xx] While some of this can be attributed to the implementation of rules mandating audit firm rotation, it was the only “Big Four” firm to suffer a net loss of clients. The loss of government work also caused it to let go of 400 of its staff.[xxi] It is not a stretch to surmise that KPMG’s clients took advantage of the rules regarding rotation to disassociate themselves from the firm and its blemished reputation.


If anything is clear from the contents of these four briefs, it is this: professions (and the professionals constituting them) have work to do. This includes serious introspection regarding the role that they play and how that role affects the public. They need to acquaint themselves with applicable legislation, rules, codes of conduct, and ethical guidelines in both form and substance. They need to refuse work if they believe that accepting it will bring them in conflict with these rules. They need to be aware of their colleagues’ conduct as well as their own, acknowledging that bad actors can bring entire firms into disrepute. The commitment not to engage in misconduct and corrupt activities needs to be internalised by all role-players, including regulators, firms, individual professionals, and their clients. And finally, they need to be more aware of the serious reputational damage that can easily result from doing work for clients who may fall into the “dubious” category.

At a time when South Africa is attempting to pull itself out of the mire of state capture and endemic corruption, the country needs its professions to work not just in their clients’ interests, but for the public good as well.

Cherese Thakur
Legal Researcher

[i] For instance, an IRBA press release states that it launched a mero motu investigation into the 2014 audit of Linkway Trading by KPMG “following media revelations”. See “Audit regulator launches probe into KPMG audits of Linkway Trading” accessed at

[ii] 26 of 2005.

[iv] L Ensor “Controversial proposals to give IRBA more powers will lapse” BusinessLive accessed at

[v] L van Tilburg “Regulator set to tighten up auditing after scandals” BizNews accessed at

[vi] In respect of chartered accountants, see Attorneys are required to pass an examination on the practice, functions and duties of an attorney, including the ethical duties of an attorney prior to admission to the profession.

[vii] See K le Roux “Hogan Lovells – fingered for role in State Capture – plays the victim in Parly” 702 accessed at

[viii] See “Law firm 'appalled' that former partner implicated in state capture testimony” News24 accessed at

[ix] The Code of Conduct enforced by the LPC binds all legal practitioners, candidate legal practitioners and juristic entities. See Government Gazette No. 42364 (29 March 2019) at page 4.

[x] Final Rules as per section 95(1), 95(3) and 109(2) of The Legal Practice Act 28 Of 2014, published under General Notice 401 in Government Gazette 41781 of 20 July 2018. Part X relates to disciplinary proceedings.

[xi] Rule

[xii] 26 of 2000.

[xiii] See the Code of Professional Conduct of the South African Institute of Chartered Accountants, accessible at, in particular, sections 225 and 360.

[xiv]See SAIPA is not created by statute. It is, however, recognised as a controlling body under the Tax Administration Act 28 of 2011.

[xv] “Former KPMG auditor Jacques Wessels struck off register over Gupta audits” IOL accessed at

[xvi]Law Society Transvaal v Behrmann 1981 (4) SA 538 (A).

[xvii] 12 of 2004.

[xviii] 121 of 1998.

[xix] 71 of 2008.

[xx] “New report highlights the extent of KPMG’s losses in South Africa” Business Tech accessed at

[xxi] K Khumalo “Analysis: KPMG loss of contracts costs 400 jobs” IOL accessed at