Ann Crotty Writer-at-large
The auditor-general’s decision is expected to influence other KPMG clients who have opted to stay with the firm despite the barrage of bad publicity over the past year. Picture: REUTERS
The auditor-general’s decision is expected to influence other KPMG clients who have opted to stay with the firm despite the barrage of bad publicity over the past year. Picture: REUTERS

The auditor-general’s decision to terminate auditing contracts with KPMG will see the embattled audit firm excluded from doing any work for the country’s most valuable client.

The auditor-general has control over auditing contracts that dwarf even the largest private-sector business.

This is the first time it has terminated work with one of the big four audit firms. Also terminated is black-owned Nkonki, which has been implicated in Gupta-related controversies.

The auditor-general’s decision is expected to influence other KPMG clients who have opted to stay with the firm despite the barrage of bad publicity over the past year.

"This decision cuts KPMG off from a massive income stream as the government is by far the largest and most valuable customer for audit firms," a former government auditor told Business Day.

The work covers every sphere of government, from municipal to local and provincial. It also includes every government department and state-owned entity.

On Tuesday, the auditor- general, Kimi Makwetu, said his office had decided to terminate, with immediate effect, the auditing contracts with KPMG and Nkonki.

Nkonki has been providing Eskom with clean audits for the past few years and recently received an audit fee of R120m from the power utility.

Its CE, Mitesh Patel, resigned last week following revelations by amaBhungane that the 2016 management buyout had been funded by Gupta lieutenant Salim Essa.

KPMG’s audit of VBS Mutual Bank appears to have been the deciding factor in the auditor-general ’s decision.

In 2017, Makwetu announced that his office would continue to use KPMG while it waited for the outcome of various investigations that had been raised in the report by KPMG International.

On Tuesday, Makwetu said recent media reports relating to the external audit of VBS and the conduct of KPMG audit partners, who received loans from the bank, prompted the decision to withdraw all KPMG audit mandates with immediate effect.

KPMG CEO Nhlamu Dlomu said she was hoping that the announcement would prove to be only a temporary break in KPMG’s relationship with the auditor-general’s office.

"The announcement by the auditor-general has come at a time when we are taking significant steps towards building a firm that is in tune with the needs of our country," Dlomu said.

She said KPMG would keep the auditor-general closely apprised of all the changes it was making to "further embed our quality and integrity in all that we do".

Makwetu said the decision to terminate Nkonki followed recent media reports relating to the management buyout.

He said the matters raised were of "grave concern and pose significant risk on the reputation of my office through the statutory audits contracted" to Nkonki.

Makwetu said citizens expected the auditor-general’s office, as the country’s supreme audit institution, to project an image of accountability, "the same way we hold the entire public sector to account on how it uses taxpayers’ monies".

He said the terminations were not a judgment on the capabilities or integrity of the professionals that worked in the firms but a recognition of the significant reputational risks associated with matters that affected them at present.

It was now time for the auditor-general’s office to build its own capacity and stop relying so heavily on private sector audit firms, said the former government auditor.

crottya@businesslive.co.za

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