Auditor-general fires external auditor after exposé

The auditor-general has terminated the services of professional services firm Crowe as its external auditor after Business Day revealed that the firm’s lead partner, Gary Kartsounis, had been sanctioned by the Independent Regulatory Board for Auditors (Irba) for shoddy work — a detail Crowe didn’t reveal to the office.

Business Day reported in July that Irba fined Kartsounis R400,000 in March after the auditing regulator found him guilty of poor work on one of the companies he was tasked with auditing. Kartsounis also played a key role in the firm’s contract with the AG.

External audits by firms such as Crowe are important for the AG and for public sector oversight by providing independent, objective assurance on financial statements and compliance.

The AG in its report to parliament said the July 20 report was the first time it had heard of findings against Kartsounis — stating that nondisclosure of Irba reviews and sanctions raised reputational and audit quality concerns.

“The [audit] committee engaged the firm [Crowe], and the parties agreed for the firm to appoint an additional external engagement quality reviewer to review the 2025/26 auditor-general audit file. The concerns relate to the engagement partner. The firm received a favourable firm-level quality assessment,” the committee told a parliamentary standing committee in a report.

“The committee engaged the firm and considered its representations but concluded that the concern remains.”

The Irba sanction followed a probe that found Kartsounis had failed to obtain sufficient appropriate audit evidence, as required by the International Standards on Auditing.

This related to derivative financial assets and options disclosed as contingent assets, where Kartsounis “failed to respond appropriately to misstatements identified during the audit”.

“As the group engagement partner, he failed to evaluate the sufficiency and appropriateness of audit evidence obtained by the component auditors,” Irba found.

Crowe was appointed through a competitive tender process in 2017, with the contract extended in 2022.

An audit partner rotation took place in 2024/25 after the previous partner completed the prescribed seven-year period. The current contractual arrangement was due to expire in January 2028.

Kartsounis also played a leading role in the controversial R400m payment by the Public Investment Corporation (PIC) to BEE outfit Acapulco, a role first reported by the Sunday Times.

In 2013 Acapulco received a R333.2m loan from the PIC to buy a 25% stake in Lanseria. Under the terms of the deal, Acapulco was expected to raise funds to refinance a portion of the capital loan amount.

The final repayment of the capital loan amount was to fall on the 10th anniversary of the first advance date, which was due in the latter part of 2023.

Acapulco defaulted on the loan, which had ballooned to about R600m, including interest. The PIC moved to protect its security by taking over Acapulco’s shares in Lanseria.

The issue of the valuation of the stake came into play. The PIC and Acapulco hired professional services firm BDO to conduct the valuation. BDO’s valuation of Acapulco’s stake came in at R238m. BDO’s report was swiftly dismissed alongside its mandate and was replaced by Crowe, which PwC found did not undergo the intense due diligence into its valuation expertise that BDO underwent before its engagement.

Mills Fitchet was appointed by the PIC to perform the property valuation of Lanseria, while Crowe was appointed to determine the fair value of the 25% shareholding Acapulco had in Lanseria, after a dispute between it and the PIC.

“On December 3 2024, Crowe issued a draft valuation report valuing Acapulco’s 25% shareholding in Lanseria Holdings at R550m. The draft report referenced the Mills Fitchet property valuation, indicating that the property valuation had been considered in arriving at the draft valuation outcome,” PwC noted in its report.

“Between December 3 2024 and January 17 2025, correspondence reflects engagement between the PIC, Crowe and Acapulco, including requests by the PIC for … clarification of the manner in which the Mills Fitchet property valuation had been taken into account in the valuation of the 25% shareholding.

“On January 17 2025, Crowe appears to have unilaterally issued its final valuation report and certificate, valuing the 25% shareholding at R1bn, an increase of approximately R490m from the draft valuation.”

It said the documentation reviewed reflected that Crowe had, among other changes, altered the manner in which the Mills Fitchet property valuation was incorporated into the final valuation outcome.

PwC found that Crowe’s valuation engagement was led by Kartsounis.

“We were unable to confirm that the Crowe engagement team had prior experience in valuations of this nature. The Crowe profile obtained during the engagement describes Mr Kartsounis as an audit specialist and does not include valuation-specific experience in any capacity,” PwC said in a report commissioned by PIC CEO Patrick Dlamini.

Attempts to contact Kartsounis for comment failed, and no response to questions emailed to him had been received by the time of publication.