Regulator reveals KPMG waved no red flags over Guptas and VBS
Disgraced KPMG failed to file any ‘reportable irregularities’ despite R900m in untraced funds and curator’s warning of fraudulent transactions
KPMG raised no red flags with the audit regulator over VBS Mutual Bank and it did not report any unlawful practices during its decade-long audit of Gupta-family companies.
Auditors are required by law to blow the whistle on "reportable irregularities", which are unlawful acts committed by management that could cause material financial loss to an entity, are fraudulent or represent a breach of fiduciary duties. They do this by filing a report with the Independent Regulatory Board for Auditors (Irba).
Despite VBS’s curator being unable to confirm the existence of R900m in deposits and flagging related-party fraudulent transactions, KPMG, which signed off on VBS’s accounts for the year to March 2017, had not filed any "reportable irregularities" with Irba, the regulator confirmed on Thursday.
The partner on the VBS audit, Sipho Malaba, had been suspended pending the outcome of an investigation, said KPMG.
"KPMG SA was investigating the matter in full co-operation with the curator of VBS Mutual Bank," it said.
This was the latest blow to hit the big four audit firm, which is the subject of Irba-initiated investigations into its work for Gupta family companies and the South African Revenue Service.
While KPMG ditched Gupta companies in April 2016 over reputational risks, leaked e-mails show these firms unduly benefited from government funds and contracts for years.
These and other revelations relating to KPMG’s work for the family led to the resignation of eight partners, including CEO Trevor Hoole in September. Notwithstanding this, KPMG had submitted no reportable irregularities from 2006 to 2016 relating to its audits of Oakbay, Sahara and Linkway Trading, Irba said.
Linkway Trading was used to channel funds for emerging black farmers to the family’s lavish Sun City wedding.
KPMG did not respond to a question on whether it had raised concern with regulators or VBS management over the bank’s practice of accepting deposits from municipalities. The law prohibits municipalities from placing deposits with mutual banks, as they are not subject to the same regulatory standards as commercial banks.
The Reserve Bank placed VBS into curatorship in March after withdrawals by municipalities led to a cash crunch.
"It appears as though VBS were paying brokerage commissions to entities to attract deposits," Reserve Bank deputy governor Kuben Naidoo said in court papers.
The curator, SizweNtsalubaGobodo’s Anoosh Rooplal, had identified a considerable number of large, related-party transactions between the bank, related companies and staff, Naidoo said.
Rooplal said there might have been "fraudulent transactions conducted to extract money from the bank to further the personal interests of certain key individuals and companies related to the bank".
Meanwhile, VBS’s internal auditor, PwC, said it was "considering the internal audit engagement and work performed". No PwC employee had been suspended, said chief operating officer Fulvo Tonelli.