PPCS auditor censured

By PAULA OLIVER

An auditor at one of the country's big four accountancy firms has been censured for showing a lack of professional competence in dealings with meat company PPCS.

Ken Fergus, a partner at Ernst & Young, was yesterday found by the Institute of Chartered Accountants' Disciplinary Tribunal to have breached parts of the profession's code of ethics.

Fergus was told by the tribunal that he did not measure up to specific technical requirements.

The case is the first of its kind against an auditor and partner in one of the major international firms operating here.

Fergus' woes stemmed from his role as an unwitting player in an ugly takeover battle between South Island meat giant PPCS and Hawkes Bay-based meat rival Richmond.

PPCS wanted to buy Richmond and offered a bank guarantee to a third party to back it to take control.

PPCS did not want Richmond to know that it was backing that third party.

It was the treatment of that bank guarantee in PPCS's accounts that saw Christchurch-based Fergus hauled before the disciplinary tribunal.

For more than two years PPCS' accounts registered "Bank guarantees - Nil".

Fergus had been the partner responsible for auditing the PPCS accounts for several years - including the affected years between 1998 and 2001.

On another occasion PPCS offered an indemnity to a different party in another attempt to win control of Richmond. Again that indemnity failed to register under the heading of "bank guarantees".

The behaviour of PPCS in its pursuit of Richmond has been the source of lengthy court battles.

But yesterday it was Fergus in the hot seat - courtesy of a complaint by former Richmond chief executive John Foster.

Tribunal chairman Tony Frankham, in delivering the penalty, said it was a disciplinary proceeding with high public profile and related to issues of public accountability. It also involved the standing and reputation of the profession and the institute.

"Our finding is that Mr Fergus did not measure up to specific technical requirements. It may have been a single fall from grace, but there were failures and there must be a penalty."

Fergus was censured and ordered to pay costs of almost $43,000.

He was found not guilty of more serious charges, including conduct unbecoming of an accountant, and negligence.

The tribunal found no evidence that Fergus knew of an attempt to conceal. It also did not support an argument from the complainant that Richmond would have discovered PPCS' intentions earlier if Fergus had done his job properly.

Fergus left the hearing without comment, but Ernst & Young later issued a statement backing him.

"The tribunal censured Mr Fergus for a minor breach of some technical and professional standards," chief executive John Judge said. "That breach was not found to be unbecoming of an accountant. Ken remains a valued member of our audit team."

The tribunal itself has also been under the microscope for electing in August to ban media and the public from a four-day hearing of evidence from witnesses in the Fergus case.

PPCS' legal representatives won the gag order after arguing that commercially sensitive material would be discussed and that it would not have a chance to defend itself.

Media were allowed back in yesterday.

Fergus' lawyer Graeme Hall argued against full publication of the tribunal's determination, saying his client had already suffered. The Christchurch audit community was small and Fergus had an impeccable reputation until the incident.

Hall said Fergus had been under close scrutiny and found it a chastening and humbling experience.

The saga had been a blow to his self-esteem, his standing in the community and his standing with his family.

The full determination will be available on ICANZ this afternoon.