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How Austere Are Our Accountants?

David Magang

On August 12, I was keynote speaker at the Botswana Institute of Chartered Accountants’ (BICA) Gala Dinner.

I had been invited to deliver an address titled Mitigation Against Dependency on Diamonds.

The component discussion points I was expected to expound upon, however, were myriad. And not only that: they were so disparate, more or less, as to constitute standalone themes in their own right. The result was that in a bid to ensure that the speech balanced out and that it did not drone on wearisomely, I refrained from propounding on the sub-themes to a level of depth I would ordinarily have liked. Some of the underlying issues I only superficially dwelt upon: just scratched on the surface. The sense of insubstantiality galled. Brevity   has never been one of my strengths: I prefer to engage a subject to the fullest extent possible.

One of the talking points, to me the most relevant given the preponderance of the audience I was addressing, related to the role accountants were expected to play in propelling the economy of Botswana forward. I found this bit particularly pertinent given the efflux of corporate accounting scandals that have dogged the Western world over the years, wreaked havoc on stock markets, and brought untold hardships to investors and employees alike.

When a multi-billion dollar company unravels in a blaze of financial impropriety, it is a serious indictment as much on its management as on its auditors. It can also inflict a telling dent on the national kitty in view of the now lost source of tax dollars. Accountants and auditors therefore are critical to ensuring that the Internal Service Revenue, or BURS in Botswana’s case, sustains its liquidity momentum, which in turn bolsters the economic potency of the country since it is tax revenues that make the macroeconomic engine chug.

But accountants do not always live up to their professional billing. There are times when they turn out to be the very embodiment of a hoodlum. The Enron Scandal, now the archetype of corporate tanking induced by fraudulent accounting, was one such case.


Founded in 1985, Enron was an American energy, commodities, and services company based in Houston, Texas. It was the seventh largest corporation in the United States, employing 20,000 people and churning out revenues north of $100 billion annually.  

At its peak, the corporate behemoth was worth about $70 billion and its shares traded for about $90 each, making it one of the hottest stocks on the New York Stock Exchange. The highly regarded Fortune magazine named Enron "America's Most Innovative Company" for six straight years.  But just as it soared to skyscraping heights, it literally overnight faced a dizzying collapse. The cookie had crumbled with a deafening thud that sent shockwaves throughout the business world. What went wrong?

It was a confluence of factors,  which included individual and collective greed born in an atmosphere of market euphoria and corporate arrogance, but the nub of the matter was deceptive financial reporting in which the company executives and its auditors were complicit. The basic essentials of the scam are summed up as follows by one pundit:

“The company would build an asset, such as a power plant, and immediately claim the projected profit on its books, even though it hadn't made one dime from it. If the revenue from the power plant was less than the projected amount, instead of taking the loss, the company would then transfer these assets to an off-the-books corporation, where the loss would go unreported. This type of accounting created the attitude that the company did not need profits, and that, by using the mark-to-market method, Enron could basically write off any loss without hurting the company's bottom line.”

By 2000, Enron was already a powder keg, needing only the tiniest spark to conflagrate. It was swimming in the very blood it had haemorrhaged, almost wholly engulfed and gasping for breath. It was a dead man walking but without making the slightest hint to the public that it was at death’s door. How did the company manage to so blindfold zillions of faces?


On August 14 2001, Kenneth Lay, Enron’s Chairman and Chief Executive Officer, sought to assure a modicum of discerning cynics who were now casting aspersions at the company’s bona fides with the following words: “There are no accounting issues, no trading issues, no reserve issues, no previously unknown problem issues. I think I can honestly say that the company is probably in the strongest and best shape that it has probably ever been in."

That outright lie came apart at the seams only four months later: on December 2, Enron filed for bankruptcy. It emerged that through the use of what are known as off-balance-sheet vehicles, Enron had overstated profits by $600 million from 1997 to 2001. The company had gone on a reckless and imprudent investment binge, without doing adequate due diligence, in the process accumulating billions of debt from fruitless deals and projects which it swept under the rug. All this was happening under the “watchful” eye of Arthur Andersen, its auditors, who were responsible for both internal and external audit. Andersen staff in fact permanently occupied a whole floor within the plush Enron edifice itself.

But it was not only the ultra-ambitious bottom line designs of the Enron executives and the dereliction of duty on the part of Andersen that redounded to the downfall of the company. Much of the finger pointing was directed at the Securities Exchange Commission (SEC) for its systemic and catastrophic failure of oversight: Enron’s post-1997 annual reports were replete with red flags which could have captured the SEC’s attention had it been only a shade vigilant.

The Credit Rating Agencies, the Standard & Poor’s of this world, also did a poor job of their mandate when they consistently awarded Enron investment grade ratings right up to the eve of its collapse. Meanwhile, the investment banks continued to sing panegyrics about Enron, punting it with positive research analysis, hyping up its stock, and infusing billions of dollars of investment into the company when they should have been one of the first to blow the whistle on its rather straitened circumstances.


The Enron implosion saw the company’s stock price plummet from $90 on August 23 2000 to 12 cents on January 11 2002, with shareholders losing close to $11 billion.  With assets valued at just under $65 billion, Enron went into the annals of US history as the largest corporate bankruptcy to date.

The company was indebted to the tune of nearly $70 billion. Of the $2 billion its 20,000 employees lost from their pensions, the only compensation they received was $3,100 each.

A number of Enron employees were indicted, including Chairman and CEO Kenneth Lay and Chief Operating Officer Jeff Skilling. All in all, 16 people pleaded guilty for crimes committed at the company.

Skilling was convicted of 19 of 28 counts of securities and wire fraud.  He drew 24 years and 4 months, though the sentence was subsequently reduced by 10 years after he struck a deal with the US Department of Justice.

Lay subliminally chose to head for Hell rather than jail: he died of a heart attack, so beleaguered was he mentally, emotionally, and sentimentally. At the time of his death in May 2006, he was awaiting sentencing for conspiracy and fraud and the SEC was seeking to recover more than $90 million from him on top of civil fines when he was practically penniless, his single-basket investments having gone up in the Enron smoke.   

With the demise of Enron came the dissolution of Arthur Andersen, at the time one of the world’s five largest audit and accounting partnerships.


In recent years, we have laid our own claim to miniature Enrons here in Botswana. A few examples will suffice, with KFC conspicuous by its absence as its fate is not conclusive yet.

In 2008, Lobtrans, a fuel transporter that served the entire SADC region and boasted a tanker fleet of about 300, went belly-up, deluged in a P270 million debt. It left 600 employees in the lurch. Where were the auditors when signs emerged that the company was headed for the abyss?

In 2014, Delta  Dairies, the first citizen-owned milk production facility, ceased to exist after only six years. Creditors had been furiously  knocking on its doors, demanding that it make good on its  P20 million aggregate debt. The irony of the matter was that the company was riding on the crest of a P68 million government tender. Once again, did the auditors do their job of pointing out the nether aspects of the company’s financial conduct?

In 2015, Fengyue – the very mention of that name actually gives me nausea – bit the dust under a quicksand of a most odious debt.  The glass manufacturing project, which was established in 2007, gave up the ghost before it produced a single pane, with its consort BDC losing close to a billion Pula. Where were the auditors when the writing had been on the wall from day one – plain and unequivocal?

In the last ten years, a number of diamond cutting and polishing firms, all foreign-owned,  have set up in the country. I do not know who audits their books, but whoever it is, are they objective and scrupulous enough to ensure that their numbers are not cleverly cooked in a bid to limit or even evade altogether tax obligations?

It is not only the collapse of a company we should be concerned about: it is transparent and conscientious reporting too. Remember, the reason why Arthur Andersen was so lax in assessing the books of Enron was that it didn’t want to blight a contract with a blue chip client that grossed it over $50 million in annual fees.

True, auditing is not meant to stop companies from making dumb business moves—just to make sure those moves are properly disclosed. But we cannot wish away the fact that some managers can be notorious in manipulating the perception of operating performance. Auditors therefore must always be on the qui vive, both to get their clients to present operating results truthfully and to put out sprouts or flickers of financial trouble before they take on inferno proportions ala Enron.

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Is COVID-19 Flogging an Already Dead Economic Horse?

9th September 2020

The Central Bank has by way of its Monetary Policy Statement informed us that the Botswana economy is likely to contract by 8.9 percent over the course of the year 2020.

The IMF paints an even gloomier picture – a shrinkage of the order of 9.6 percent.  That translates to just under $2 billion hived off from the overall economic yield given our average GDP of roughly $18 billion a year. In Pula terms, this is about P23 billion less goods and services produced in the country and you and I have a good guess as to what such a sum can do in terms of job creation and sustainability, boosting tax revenue, succouring both recurrent and development expenditure, and on the whole keeping our teeny-weeny economy in relatively good nick.

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Union of Blue Bloods

9th September 2020

Joseph’s and Judah’s family lines conjoin to produce lineal seed

Just to recap, General Atiku, the Israelites were not headed for uncharted territory. The Promised Land teemed with Canaanites, Hittites, Amorites, Perizzites, Hivites, and Jebusites. These nations were not simply going to cut and run when they saw columns of battle-ready Israelites approach: they were going to fight to the death.

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Security Sector Private Bills: What are they about?

9th September 2020

Parliament has begun debates on three related Private Members Bills on the conditions of service of members of the Security Sector.

The Bills are Prisons (Amendment) Bill, 2019, Police (Amendment) Bill, 2019 and Botswana Defence Force (Amendment) Bill, 2019. The Bills seek to amend the three statutes so that officers are placed on full salaries when on interdictions or suspensions whilst facing disciplinary boards or courts of law.

In terms of the Public Service Act, 2008 which took effect in 2010, civil servants who are indicted are paid full salary and not a portion of their emolument. Section 35(3) of the Act specifically provides that “An employee’s salary shall not be withheld during the period of his or her suspension”.

However, when parliament reformed the public service law to allow civil servants to unionize, among other things, and extended the said protection of their salaries, the process was not completed. When the House conferred the benefit on civil servants, members of the disciplined forces were left out by not accordingly amending the laws regulating their employment.

The Bills stated above seeks to ask Parliament to also include members of the forces on the said benefit. It is unfair not to include soldiers or military officers, police officers and prison waders in the benefit. Paying an officer who is facing either external or internal charges full pay is in line with the notion of ei incumbit probation qui dicit, non qui negat or the presumption of innocence; that the burden of proof is on the one who declares, not on one who denies.

The officers facing charges, either internal disciplinary or criminal charges before the courts, must be presumed innocent until proven otherwise. Paying them a portion of their salary is penalty and therefore arbitrary. Punishment by way of loss of income or anything should come as a result of a finding on the guilt by a competent court of law, tribunal or disciplinary board.

What was the rationale behind this reform in 2008 when the Public Service Act was adopted? First it was the presumption of innocence until proven otherwise.

The presumption of innocence is the legal principle that one is considered “innocent until proven guilty”. In terms of the constitution and other laws of Botswana, the presumption of innocence is a legal right of the accused in a criminal trial, and it is an international human right under the UN’s Universal Declaration of Human Rights, Article 11.

Withholding a civil servant’s salary because they are accused of an internal disciplinary offense or a criminal offense in the courts of law, was seen as punishment before a decision by a tribunal, disciplinary board or a court of law actually finds someone culpable. Parliament in its wisdom decided that no one deserves this premature punishment.

Secondly, it was considered that people’s lives got destroyed by withholding of financial benefits during internal or judicial trials. Protection of wages is very important for any worker. Workers commit their salaries, they pay mortgages, car loans, insurances, schools fees for children and other things. When public servants were experiencing salary cuts because of interdictions, they lost their homes, cars and their children’s future.

They plummeted into instant destitution. People lost their livelihoods. Families crumbled. What was disheartening was that in many cases, these workers are ultimately exonerated by the courts or disciplinary tribunals. When they are cleared, the harm suffered is usually irreparable. Even if one is reimbursed all their dues, it is difficult to almost impossible to get one’s life back to normal.

There is a reasoning that members of the security sector should be held to very high standards of discipline and moral compass. This is true. However, other more senior public servants such as judges, permanent secretary to the President and ministers have faced suspensions, interdictions and or criminal charges in the courts but were placed on full salaries.

The yardstick against which security sector officers are held cannot be higher than the aforementioned public officials. It just wouldn’t make sense. They are in charge of the security and operate in a very sensitive area, but cannot in anyway be held to higher standards that prosecutors, magistrates, judges, ministers and even senior officials such as permanent secretaries.

Moreover, jail guards, police officers and soldiers, have unique harsh punishments which deter many of them from committing misdemeanors and serious crimes. So, the argument that if the suspension or interdiction with full pay is introduced it would open floodgates of lawlessness is illogical.

Security Sector members work in very difficult conditions. Sometimes this drives them into depression and other emotional conditions. The truth is that many seldom receive proper and adequate counseling or such related therapies. They see horrifying scenes whilst on duty. Jail guards double as hangmen/women.

Detectives attend to autopsies on cases they are dealing with. Traffic police officers are usually the first at accident scenes. Soldiers fight and kill poachers. In all these cases, their minds are troubled. They are human. These conditions also play a part in their behaviors. They are actually more deserving to be paid full salaries when they’re facing allegations of misconduct.

To withhold up to 50 percent of the police, prison workers and the military officers’ salaries during their interdiction or suspensions from work is punitive, insensitive and prejudicial as we do not do the same for other employees employed by the government.

The rest enjoy their full salaries when they are at home and it is for a good reason as no one should be made to suffer before being found blameworthy. The ruling party seems to have taken a position to negate the Bills and the collective opposition argue in the affirmative. The debate have just began and will continue next week Thursday, a day designated for Private Bills.

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