EXAM LEAK SANCTIONS MUST BE FAIR

This article first appeared in the Business Times section of The Sunday Times on 27 March 2016  

ON February 18, the South African accounting profession was shocked to learn that the much-anticipated results of the South African Institute of Chartered Accountants’ assessment of professional competence exam were no longer to be released the following day, as scheduled. 

The reason for this delay was the discovery of a “leak” of a confidential work paper from an audit of a client in the same industry as the case study the exam was based on. 

In the APC exam, candidates are furnished with a case study, without the question, five days before the exam. They are encouraged to discuss it in study groups that include trainees from various accounting firms. I am told that this time the case study involved a healthcare company.

Apparently, two trainees at PwC’s Port Elizabeth and East London offices distributed a client work paper to colleagues during preparations for the exam. The information quickly spread to all other firms, including small and medium-sized firms.

Keep in mind that at this preparatory stage, nobody knows what will actually be required in the exam.

Most of the work is about getting to know as much as possible about the case study industry, to be best prepared to answer whatever question comes up in the exam.

I am not sure how much of an advantage, if any at all, an audit work paper would have been to the candidates.

However, the real issue in this entire debacle is ethics and confidentiality, the cornerstones of the audit profession.

For PwC, its trainees have shared confidential client information with the outside world. There is no question that this is unacceptable and ought to be a dismissible offence.

I am told that the firm has dismissed at least 11 employees as a result. However, others have received a slap on the wrist in the form of written warnings and continue to work for the firm.

Apparently, the firm has decided to distinguish between trainees who knew they were disseminating confidential information and those whom it has deemed “would not have known” they were sharing confidential client information when they forwarded the work paper to their friends.

The further complication here is that, according to the Association for the Advancement of Black Accountants of Southern Africa, this decision seems to have prejudiced black candidates more than white candidates among those who were guilty of leaking the working paper.

PwC must be consistent in how it applies sanctions to the guilty parties.

Surely the principle should be based on whether one shared confidential client information with unauthorised parties.

As a matter of course, chartered accountants are required to refrain from “disclosing outside the firm confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose”.

Therefore, if found guilty, all these trainees must pay the price. Claiming to “not have known” cannot be a defence.

For Saica, the potential issue would be that candidates received information that was not in the public domain, in contravention of the APC regulations.

The obvious problem with this is about information you as a candidate already know.

During my articles, I was on the McCarthy Group audit for three years.

If the case study during my board exam had been about the car retail industry, I couldn’t possibly have undone the information I knew and I could quite easily have told my study group of my insights without necessarily e-mailing a confidential work paper. My study group and I would naturally have had an advantage over candidates who had not had the experience and exposure I would have had in that industry.

I suspect Saica accepts this risk, and its issue in this instance would be about the dissemination of this “non-public” information among the candidates, not what candidates knew as a result of their experience.

Apparently, as many as 300 candidates of the 2 709 could have had access to this work paper before sitting for the exam.

I am told Saica has requested candidates to submit sworn affidavits voluntarily, in which they should admit to any involvement in passing on the confidential information. It’s interesting to note that the request is not for those who had access to the information but, instead, those who passed it on.

It seems the emphasis is on the unethical behaviour of sharing confidential information as opposed to the potential benefit those who saw the work paper may have had in the exam.

I am further informed that some firms have instructed their trainees not to respond to this request. It appears there is little co-operation between Saica and the firms in this investigation. I suspect the two may have different interests, with the institute wanting to preserve its credibility and that of the APC exam, and the firms maybe interested in protecting the perceived integrity of their trainees and retaining their clients.

Of course, the downside of this strategy is that Saica expects trainees to tell on themselves. I don’t see that happening. It’s just not human nature — not even for accountants, especially those who have been sharing confidential information among themselves.

It follows, therefore, that trainees who are found to have conducted this contravention would be subject to disciplinary proceedings. It is, however, important that both PwC and Saica follow due and fair process in the investigation and that the ultimate decision on a sanction be based on an independent assessment of the circumstances of each candidate.

Anything short of this will surely escalate the racial tension, with the firm being accused of being tougher on black candidates than white ones.

More important, this matter has to be fairly resolved to maintain the ethical reputation of the profession.