Former KPMG auditor Jacques Wessels has become the first individual to face any real sanction related to the Estina dairy farm saga, after the National Prosecuting Authority (NPA) provisionally withdrew charges against Gupta family members and business associates in November last year.

Wessels was responsible for auditing the financial statements of Gupta-owned Linkway Trading, which was allegedly part of an elaborate scheme in which taxpayers’ money from the Estina dairy project – meant to empower disadvantaged Free State farmers – was used to pay for the wedding of the Gupta brothers’ niece, Vega, at Sun City in 2013.

After a year-long investigation into Wessels’ conduct, an independent disciplinary committee found him guilty on six charges of misconduct laid against him by the Independent Regulatory Board for Auditors (Irba), for having violated 31 auditing standards. Now the committee, which was also tasked with deciding on an appropriate sanction, has reached a decision: based on evidence of "egregious" dishonesty that cost the SA Revenue Service (Sars) more than R2m, Wessels has been barred from practising as an auditor. He won’t be allowed to apply for reregistration, as is usually the case under the Auditing Profession Act. And he has to contribute towards the R3.13m in costs that Irba incurred during the investigation.

"The committee ruled that it is clear that an auditor could only apply for reregistration upon satisfying the board that he is a fit and proper person," says Irba CEO Bernard Agulhas. "On the basis of the decision reached by the committee, it’s clear that the respondent does not qualify as a fit and proper person."

Irba’s investigation found that Wessels dishonestly restated the financial statements of Linkway so that R6.9m in hotel and accommodation expenses reflected as cost of sales. This allowed the company to treat the wedding expenses as an unspecified tax deductible — which meant Sars lost more than R2m in tax income. According to Irba, Wessels did this knowing full well it was wrong; he’d previously agreed with a colleague at KPMG specialising in tax matters that the tax deduction was not permissible.

Irba demonstrated that Wessels had failed to investigate seven unusual transactions reflected in the financial records of Linkway, including the Gupta family wedding, and that he had not treated transactions outside of the normal course of business with professional scepticism.

It’s clear that the respondent does not qualify as a fit and proper person [to reregister as an auditor]

As Wessels’ case is the first high-profile "Gupta leaks" matter to reach a disciplinary conclusion, Irba’s announcement of the sanction has been highly anticipated. For the regulatory body itself, it’s been an anxious seven-month wait to see if its request to have Wessels deregistered as an auditor would be granted. Any lesser sanction would probably have entrenched the public perception that auditors are not held to account in SA, and that the regulator is toothless.

In a plea for mitigation of sentence in February, Wessels said while he had never seen any contract or invoice that would allow the wedding expenses to be written off as a business expense, this was the only occasion in his tenure as a Linkway auditor that he had signed off on something without the requisite evidence.

While Irba called for his disbarment, Wessels argued that a warning would be more appropriate, as he had learnt from his mistakes. He also said he could ill afford a fine, due to the financial woes he had gone through since leaving KPMG; the only liquid asset he had left to sell, he said, was a share in a game farm worth about R450,000.

While the committee seemed sympathetic to his financial predicament at that time, its ruling that he be struck from the roll in addition to paying towards Irba’s costs suggests it found the severity of his transgression and the public interest in punishment sufficient to outweigh what could only be described as self-inflicted problems.

Had the committee simply imposed a fine under the Auditing Profession Act, Wessels would have been liable for R1.2m at most (the act allows the regulator to impose a fine of not more than R200,000 per charge). That may not have satisfied the public, given that the average KPMG audit partner earned about R3.7m in 2018. If Wessels were still able to practise as an audit partner and earn that kind of money, a R1.2m fine alone would have served as little deterrent. (As it is, Wessels does not earn anywhere near this much anymore, having moved to a small accounting firm.)

Now, Irba will refer its findings and sanction to the SA Institute of Chartered Accountants (Saica), the accounting regulatory body of which Wessels is also a member. Willi Coates, senior brand executive at Saica, says Irba’s findings will feed into the body’s own disciplinary process, with an independent disciplinary committee to decide on an appropriate sanction. This is particularly bad news for Wessels, who previously said that if he were not allowed to practise as an auditor again, his other options included starting his own accounting practice or applying for work in the commercial sector, given his CA (SA) qualification.

If Saica’s committee also removes his accreditation, the road to recovery will be a very long one.

What it means

Wessels has been barred from practising as an auditor, with no prospect of reregistering, and he has to contribute to R3.1m in costs

There’s also a potential criminal investigation related to the matter. Irba says it will make its findings available to the NPA, but it’s up to the prosecuting authority to decide whether to use this information. Irba says it’s not clear at this stage whether the NPA is considering charges of tax evasion, or if its focus is on alleged money laundering.

KPMG itself has emerged from the Irba process unscathed, as Irba’s charge sheet only included charges against Wessels as the engagement partner for Linkway Trading and not the firm. The regulator says it would only open a firm-wide investigation if there were significant concern that audit failures are of a systemic nature.

Similarly, KPMG SA executive chair Wiseman Nkuhlu says while the firm acknowledges that Wessels’ work on Linkway fell short of the quality expected of the firm, and was unacceptable, Irba’s findings relate to Wessels specifically, and not to the firm.

It seems clear that KPMG did not have sufficiently rigorous processes in place to review work done by its senior audit partners prior to the Gupta and VBS Mutual Bank scandals. But Nkuhlu says these audits were performed in a very different operating environment.

"KPMG is a very different business from the time when this work took place," he says. "We have made significant changes." Among these has been a reassessment of almost every aspect of the firm’s business since September 2017, and the company now subjects its audit files to review by independent partners outside SA.