KPMG. Picture: BLOOMBERG NEWS/TANNEN MAURY
KPMG. Picture: BLOOMBERG NEWS/TANNEN MAURY

The lead KPMG audit partner on the Gupta accounts, Jacques Wessels, has been accused of helping the family dodge their tax obligations but he is pleading "negligence", which he says does not amount to dishonesty.

Wessels’ conduct is being probed by the disciplinary committee of the Independent Regulatory Board for Auditors (Irba) on six charges of misconduct. The charge sheet against him paints a picture of complicity in fraud.

Closing arguments were presented last week and a verdict is expected within 30 days.

Wessels was the lead partner for various Gupta entities, including Linkway Trading, which was allegedly used to divert R30m of taxpayers’ money to fund the Guptas’ 2013 Sun City wedding.

KPMG was embroiled in allegations of state capture as a result of the Gupta e-mail leaks, and several senior KPMG executives resigned.

Wessels himself quit KPMG in September last year after the firm decided to take disciplinary action against him.

He is alleged to have ensured that Linkway dodged paying the SA Revenue Service (Sars) just more than R2m.

During the audit of the financial year ending February 2014, Wessels amended Linkway’s financial statements and shifted R6.9m, which was used to pay for hotel accommodation for guests at the lavish wedding, from operating expenditure to cost-of-sales so that it could be tax deductible.

It was red-flagged too: a member of the firm’s tax team raised the possibility that Sars might reject this because the expenditure would not be regarded as the production of income.

The Wessels charge sheet says the information submitted to Sars was "intentionally misrepresented" and resulted in Linkway’s tax being reduced on an "unjustifiable basis".

Irba audit investigator Janica Boshoff says there was an understatement of tax payable and that after the R6.9m was moved, Linkway paid only R55,000 in tax when it should have paid R2.1m.

Wessels has admitted he failed to "adequately apply his mind" when reallocating the R6.9m. However, he says there was no certainty, only a possibility, that the item was not tax deductible.

The Irba charge sheet lists seven revenue transactions amounting to R43.4m that could amount to fraud.

In terms of section 34 of the Prevention & Combating of Corrupt Activities Act, KPMG had an obligation to report certain actual or suspected crimes, which it did not do.

The transactions are:

• Expenses for the Sun City wedding worth R26.3m with Accurate Investments;

• Construction work done for ANN7 worth R12m;

• Inventory for the launch of Infinity Media Networks worth R434,000;

• Antennas for Infinity Media Networks worth R1.2m;

• Marketing gifts and giveaways worth R477,000 for Sahara Computers;

• Marketing inventory worth R336,000 for TNA Media; and

•School sponsorship of R2.5m from Westdawn Investments.

Irba says Wessels failed to investigate these "unusual transactions" to verify if they involved fraudulent financial reporting or misappropriation of assets.

These transactions could amount to income tax and possibly VAT fraud, though KPMG has always maintained there was no criminal element to the work it did for Gupta companies.

KPMG said it had instituted its own disciplinary proceedings against Wessels when the issues came to light last year.

"We acknowledge that in certain instances the audit work of the Gupta entities fell well short of the quality expected, and that the audit team failed to apply sufficient professional scepticism and to comply fully with auditing standards," it said.

KPMG said it had taken steps to ensure its audit quality standards were applied consistently.

Wessels is arguing that the facts are more consistent with an auditor who was "honest but negligent".

Though questions and suspicions have been raised concerning the wedding transaction, Wessels says there is no evidence that fraud, money laundering or tax evasion occurred.

He argues that negligence, even gross negligence, does 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 says.

It remains to be seen if the Irba process will result in criminal charges against Wessels or even KPMG.