Ex-KPMG partner admits only to ‘neglect’ in Gupta audit
The former KPMG partner denies dishonesty and evading taxes by reallocating costs for wedding transaction
A former KPMG partner admitted to being negligent during the audit of the Gupta company that passed off wedding costs as a business expense. However, Jacques Wessels denied he had been dishonest and had helped the controversial family to commit tax evasion.
Wessels, who was the lead partner for the nonlisted Gupta entities, is alleged to have ensured that Linkway dodged paying the SA Revenue Service (Sars) just more than R2m.
In terms of section 34 of the Prevention and Combating of Corrupt Activities Act, KPMG had an obligation to report certain actual or suspected crimes, which it had not done.
The international auditing firm found itself embroiled in allegations of state capture after a tranche of Gupta e-mails were leaked to the media. Several senior executives resigned from KPMG in the wake of the Gupta scandal.
Linkway was allegedly used to channel R30m of taxpayers’ money to fund the infamous 2013 Sun City Gupta wedding, and is the subject of an inquiry by the Independent Regulatory Board for Auditors (Irba) disciplinary committee.
Irba has brought six charges of misconduct against Wessels.
Closing arguments in the inquiry were presented at the weekend. The Irba disciplinary committee now has 30 days to revert back.
Irba audit investigator Janica Boshoff, who was testifying at the inquiry in July, accused Wessels of being "dishonest" and intentionally misrepresenting information to Sars.
Boshoff found that during the audit of the financial year-ending February 28 2014 Wessels had moved an amount of R6.9m, which was used to cover hotels and accommodation for guests at the wedding, from operating expenditure to cost of sales and deducted them for tax purposes.
There was also an understatement of tax payable and after the R6.9m had been moved, Linkway paid only R55,000 in tax to Sars when it should have paid R2.1m.
In his heads of argument, Wessels admitted he had failed to "adequately apply his mind" when reallocating the R6.9m. However, he said there was no certainty that the item was not tax deductible and that it was merely a possibility.
There was also no evidence that the reallocation of the R6.9m would have resulted in Linkway’s tax position.
The deductibility was raised by KPMG’s tax department, which resulted in the reallocation to cost of sales.
"Had the client [Linkway] or the respondent [Wessels] been intending to evade tax, the expense would have been written up in cost of sales to begin with, not placed in operating expenses where it might be detected by Sars," Wessels said in his heads of argument. "There is no benefit to the respondent to assist in evading tax and none was shown or suggested."
He said the facts were more consistent with an auditor who was "honest but negligent".
Although questions and suspicions had been raised concerning the wedding transaction, there was no evidence that any fraud or money laundering or tax evasion had occurred. Wessels argued that negligence, and even gross negligence did not translate to dishonesty.
"To convict the respondent of dishonesty and tax evasion in these circumstances is to do so on the basis of conjecture and speculation," he said.