The role of the auditor recently received a lot of attention as the Gupta-linked Vrede dairy farm, Eskom and Steinhoff sagas unfolded. While the effects of Steinhoff’s collapse on retirement fund returns are well documented, the role of the auditors at Steinhoff is still unclear.
This doesn’t bode well for your sleep cycle if you’re an auditor. But what about the rest of us?
A lot if you belong to a pension fund, even if it escaped serious Steinhoff-linked losses. The board of trustees of your pension fund could be costing you your retirement – literally.
“Many lessons should be learned from the Steinhoff happenings,” says Henry Dul of Independent Trustee Services. “Boards rely extensively on the work of the auditors to ensure that funds have solid investments and that they comply with the law. It’s not the auditor’s job to ensure that everything is above board in a fund – that is ultimately the trustees’ job,” says Dul, who literally wrote the book on the responsibilities of retirement fund trustees.
Jacobus Troveri, chairman of the Gijima pension and provident fund, has been in the retirement fund trustee game for three years. He says local retirement fund trustees have been left shaken by the Steinhoff collapse, saying it “affected more than just the Government Employees’ Pension Fund; it touched pretty much every institutional investor in South Africa. The issue boils down to trusted advisers and the ecosystem that has been built around them. Trustees of funds pay a large premium to these advisers to ensure that they receive considered advice. If this falls apart, then the entire chain is compromised.”
The Pension Funds Act requires retirement funds to submit audited financial statements to the Registrar of Pension Funds within six months of the fund’s financial year end. The rules of the fund also generally stipulate that the board appoints an auditor. Here’s where it gets tricky – although the board of trustees must appoint the auditor, this is generally guided by choices put forward by the fund’s administrator. So the fund’s watchdog is indirectly appointed by the administrator, with the result that the auditors may find it difficult to maintain their independence.
Does this sound familiar? It should, because this is what happened with KPMG and the dairy farm. And probably Steinhoff.
Other examples abound, showing that this problem is not unique to the high rollers. Last year, Dul uncovered investments in the name of a service provider to a retirement fund that should have been in the fund’s name. This happened in 2009 and went undetected by the fund’s auditors until Dul became involved. In another case, Dul noticed that one of the country’s largest umbrella funds had millions of rands missing. When Dul pointed this out, a manager at the administrator told him not be be concerned, “they will find the money and enhance beneficiaries benefits when they do”.
These are, apparently, not uncommon occurrences – although they go mainly unreported. Until KPMG and Steinhoff came along, that is.
This affects you directly, at least when it comes to your pension. ‘Missing millions’ result in lower benefits for members.
Mathias Sithole, the principal actuarial consultant at Liberty Corporate, says: “The complexity of retirement funds places a significant burden on the trustees, who are tasked with governing and managing them. Although trustees should seek expert advice and services where necessary, they are ultimately responsible for the decisions taken and the mandates given to service providers.
“There is therefore a need for trustees to be sufficiently trained and knowledgeable to execute their responsibilities competently, independently and free of conflicts of interest. Stronger regulation should go a long way towards addressing this.”
Last year, Allan Greenblo of Today’s Trustee told online publication Insurance Gateway that the Academy of the Association for Savings & Investment South Africa was working with Batseta (the Council of Retirement Funds for South Africa) on a training programme for trustees leading to an NQF Level 7 qualification.
“What we are talking about here is trying to compel trustees to gain the knowledge they need to do their jobs,” says Wayne van Rensburg, the president of the Institute of Retirement Funds Africa.
But what if trustees, many of whom are employees in a part-time position who are not always remunerated, don’t realise their need to upskill?