KPMG woes deepen on VBS scandal
KPMG will face renewed pressure from its banking clients after it emerged that the two partners who quit the firm at the weekend — facing disciplinary charges relating to its audit of failed VBS Mutual Bank — both also worked on the audits of large commercial banks.
Partners Sipho Malaba and Dumi Tshuma resigned on Friday when faced with disciplinary charges brought against them relating to their failure to disclose "relevant financial interests" in VBS Mutual Bank, KPMG said.
"They were both on big bank audits," CEO Nhlamulo Dlomu said on Sunday at the firm’s Johannesburg headquarters.
KPMG, which audited Investec, Nedbank, Standard Bank and Barclays Africa, would review the quality of the work done for these banks, she said.
Malaba had failed to disclose loans held with VBS, which was placed into curatorship in March and is now the subject of a Reserve Bank-instituted forensic investigation.
Employees were required to disclose where they held loans with financial institutions, said Dlomu. In conversations with Malaba, some of the information he provided was "misleading".
"This is shocking and disappointing for us," Dlomu said. The disappointment and anger in the firm following revelations relating to VBS was "palpable".
KPMG had appointed law firm Bowmans to assist with an internal investigation relating to the VBS matter, she said.
Investec and Standard Bank said that Malaba and Tshuma were not on the banks’ audits. Standard Bank was awaiting the outcome of the Bowmans investigation before deciding on its future relationship with KPMG, said group financial director Arno Daehnke. The bank had been in "extensive contact" with KPMG since the VBS matter came to light and would continue to subject it to the "rigorous processes" with which it evaluated all its suppliers, Daehnke told Business Day.
Barclays Africa spokesman Songezo Zibi said the bank had requested additional quality assurance from KPMG in 2017 and its status as the bank’s external auditor remained under review pending the outcome of investigations by the audit and accounting regulators. Information relating to VBS would be considered within the next month at the next audit committee meeting, he said.
Nedbank CE, Mike Brown confirmed that one of the executives who resigned was KPMG’s lead engagement partner on the bank’s audit. That the executive worked alongside many others from KPMG and Deloitte, and there were several reviews of the work, contributed to Nedbank’s assurance, Brown said.
Although not flagged by KPMG during its audit, VBS’s curator, SizweNtsalubaGobodo’s Anoosh Rooplal, has uncovered a number of related-party transactions between VBS, related companies and staff.
In court papers filed by Reserve Bank deputy governor Kuben Naidoo, it emerged that Rooplal suspected "fraudulent transactions conducted to extract money from the bank to further the personal interests of certain individuals and companies related to the bank".
This is the latest blow to hit the big four firm, which on Sunday announced a raft of additional measures aimed at restoring public confidence in the quality of its audit work. This follows the resignation of nine partners, including then CEO Trevor Hoole, in 2017 following a KPMG International investigation, which revealed that KPMG SA’s work for Gupta family companies and the South African Revenue Service fell well below the firm’s standards.
In January, on requests from its clients, the firm also appointed nonexecutive directors in Ansie Ramalho and chairman Wiseman Nkuhlu to enhance governance. Now KPMG will review about 200 audit files stretching back two years and conduct "integrity checks" on all its senior employees and their partners.