Auditor-general Kimi Makwetu. Picture: GCIS
Auditor-general Kimi Makwetu. Picture: GCIS

The independence of the auditor-general’s office was sacrosanct and could not be jeopardised by the risks that had emerged in relation to certain audit firms, auditor-general Kimi Makwetu said on Friday.

Makwetu appeared before Parliament’s standing committee on the auditor-general and the standing committee on public accounts (Scopa) to explain why he had terminated the audit mandates of KPMG and Nkonki Inc.

He emphasised the need for trust in the work of the auditor-general and its credibility. This was grounded in the independence of the auditor-general’s office.

Scopa chairman Thembi Godi agreed. "Reputation is everything. Defend it with your life," he told Makwetu.

The auditor-general’s office uses more than 90 audit firms to conduct annual audits of national and provincial government departments, municipalities and state entities. The total bill for this work amounts to about R450m annually, of which KPMG and Nkonki received a combined R90m.

The mandates of KPMG and Nkonki Inc to conduct some of these audits were terminated in April for different reasons.

The tipping point in the case of KPMG was the revelation that two auditors involved in the audit of VBS Mutual Bank, which is under curatorship, had been extended loans by the bank.

The audit firm was already under Makwetu’s watch following a report in September last year by KPMG International which pointed to an apparent breakdown in risk management and audit practice disciplines.

Makwetu said his office needed to determine whether this breakdown was an isolated case or whether it was systemic, but before investigations were concluded the VBS Mutual Bank matter came to light.

A decision was therefore taken to withdraw KPMG’s mandate to do work for the auditor-general’s office until very significant questions about audit quality were answered.

With regard to Nkonki Inc, the question was whether or not its shareholders were registered auditors as required by the law.

Nkonki’s leadership was not able to answer this question — which Godi found incomprehensible, while Vincent Smith, chairman of the standing committee on the auditor-general, said Nkonki should be barred from doing all public audit work until it had declared who its shareholders were.

In both cases there was a need to make an urgent decision because of the approaching deadline for signing off on statutory audits, Makwetu told MPs.

The two firms would complete the outstanding audit work for the financial year ending March 31 2018, though the auditor-general’s office would supervise the work and undertake quality assurance.

Makwetu said that audit work of the auditor-general’s office was outsourced on the basis of two strict principles — the independence of the audit firm, and that the work would be carried out with professional competence and in accordance with the auditing standards and methodology employed by the auditor-general’s office.