How KPMG helped build the Gupta empire
'The scope of any investigation‚ internal or external‚ needs to take into account both audit work and advisory work'
KPMG’s fingerprints are all over the Gupta empire and its controversial deals dating back to 2008‚ TimesLIVE and BusinessLIVE can reveal‚ as an industry probe into the firm’s involvement with the family unfolds.
KPMG’s involvement in auditing Linkway Trading‚ allegedly used to channel R30m of taxpayers’ money to fund the infamous 2013 Sun City Gupta wedding‚ is the subject of an inquiry by the Independent Regulatory Board for Auditors (IRBA).
KPMG has promised to do a "comprehensive" review of its work related to the Guptas.
The auditing firm also gave advice on investments and forming companies in Dubai‚ conducted a due diligence on Ubank — which the Guptas wanted to buy — and provided a tax opinion and audit of VR Laser Services.
This is revealed in leaked emails between the Guptas and their associates. They show the extent to which KPMG provided services to the family and at least 36 linked companies‚ at least until April 2016‚ when their South African CEO‚ Trevor Hoole‚ announced the termination of their services because of “association risk”.
After revelations in the leaked emails‚ Hoole said KPMG would conduct an internal review of work done for Gupta-linked companies.
The review‚ by KPMG’s international company‚ will have to look at more than what has been publicly revealed in the leaked Gupta emails.
They show that KPMG provided a wide range of auditing‚ financial and advisory services.
During the provision of financial services to the Guptas‚ several KPMG staff members received potentially questionable invitations to events hosted by the family. Some included 2010 Soccer World Cup match tickets and invitations to the launch of The New Age and Diwali celebrations.
In some cases‚ communication between KPMG staff and the Guptas and their representatives appear to have gone beyond the provision of professional auditing and financial services; some suggest close familiarity.
The Gupta family has been implicated in numerous “state capture” allegations‚ most notably those associated with state-owned enterprises Eskom‚ Denel‚ Transnet and a dairy project in the Free State.
In the case of the Optimum Coal Mine acquisition‚ which ultimately saw the finance ministry and Eskom waive a R1.5-billion fine due to the power utility‚ and the purchasing of the mine by way of partial state funding‚ KPMG played a key role in what they coined “Project Dragline”.
Similarly‚ KPMG played a key role in the Guptas’ acquisition of Shiva Uranium mine which saw the non-payment of a loan and an ultimate loss to the Independent Development Corporation. KPMG dubbed this “Project Romulus”.
KPMG also acted for the Guptas‚ to an extent‚ in the controversial VR Laser matter‚ which state-owned arms manufacturer Denel exited from recently.
Sygnia CE Magda Wierzycka‚ who has been outspoken about KPMG’s role in the Gupta saga‚ said the firm needed to decide to what extent it wanted to redeem its reputation in the court of public opinion and if that mattered to them.
“If it does‚ the scope [of the review] must be exhaustive and the results transparent‚ including an apology‚” she said.
“KPMG also provided a lot of advisory work to the Guptas (particularly on the Optimum Coal transaction). Hence the scope of any investigation‚ internal or external‚ needs to take into account both audit work and advisory work.”
KPMG‚ in response to questions‚ said the scale and scope of the review was “comprehensive and covers all aspects of our work” related to the Guptas. On whether it would make the findings public‚ KPMG said it would‚ “within legal parameters”.
Since July‚ Sygnia has cut ties with them and the auditors seem likely to lose investment company Deneb — part of the Hosken Consolidated Investments group — after it launched their own review of KPMG’s role as their auditors.
This week the Board of the Institute of Directors in Southern Africa said it was temporarily suspending all co-branded activities with KPMG‚ including dropping the firm as sponsor for its golf day and involvement in the Audit Committee Forum.
IRBA's complaint for now is focused primarily on the audit of Linkway Trading‚ but it may expand its investigation scope if necessary‚ it said.
If found guilty of wrongdoing‚ IRBA may‚ under the Auditing Profession Act‚ issue a caution or reprimand to KPMG‚ a R200‚000 fine per charge‚ suspend KPMG’s auditors’ rights to practice for a certain period or remove their auditors from South Africa's register of registered auditors.
KPMG also face global scandals with its audit of Rolls Royce under investigation by the UK accounting watchdog.
It was recently slapped with a US$6.2-million fine over “audit failures” in its audit of Miller Energy Resources.
South African Institute of Chartered Accountants (SAICA) chief executive Trevor Nombembe said the review KPMG was undertaking involved reviewing documents the firm had audited. “They will look at the audit files to ensure that the conclusions arrived at are consistent with the evidence contained within the files.”
Asked if the results had to be shared outside of KPMG‚ Nombembe said: “They would not necessarily have to share their findings with IRBA‚ although IRBA would have access to these files.”
IRBA said it was in the public interest for KPMG to make its review findings public‚ especially if auditors were transparent about matters which affected the public.