JOHANNESBURG - Embattled auditing firm KPMG yesterday said it would be reviewing work done by all its audit partners in the past 18 months, and is conducting background checks of its audit partners and their spouses.
The firm said the drastic step was to “assess the commitment to quality and professionalism of our engagement teams”. The review will encompass about 200 files and comes in the wake of the firm’s two audit partners whose conduct was found wanting in relation to VBS Mutual Bank, which has since been placed under curatorship and a forensic investigation.
The saga surrounding VBS has firmly brought back beleaguered KPMG into the spotlight, with the firm’s head of its largest business unit, financial services auditing Sipho Malaba resigning over the unfolding scandal. Malaba was the lead audit partner on VBS. Another partner at the firm, Dumi Tshuma, also fell on his sword. Both were accused of not disclosing relevant financial interests. KPMG confirmed Malaba had loans with VBS.
KPMG chairperson Wiseman Nkuhlu said some partners might feel aggrieved with their integrity being placed under scrutiny, but such measures are unavoidable requirements
to rebuild trust.
“The actions we have taken are unprecedented. There will be some unhappiness from both sides, some people are going to say ‘this is demeaning’ as I am trusted by my clients and colleagues and there will be resistance from people who are involved in wrongdoing. But as a chairperson, I will not blink in enforcing these initiatives,”
Nkuhlu said. A team from KPMG International partners will start the reviews today. The firm also looks after the books of Standard Bank, Investec, Absa and Nedbank. Early indications as uncovered by the curator have found that nearly R1 billion was unaccounted for among other dodgy dealings at the bank. VBS’s internal auditor PwC has distanced itself from the messy state of the bank’s books.
Chief operating officer of PwC Fulvio Tonelli said as internal auditors of VBS, its role was the consideration of the bank’s risk management, internal control and governance processes.
“It would not ordinarily require the examination or testing of individual transactions or specifically the identification of fraud. PwC confirms that it was not within our scope of engagement to identify fraudulent transactions,” Tonelli said. The SA Reserve Bank (Sarb) said on Friday that it had appointed senior counsel Terry Motau to lead a forensic investigation into the affairs of VBS. It said the investigation would look at the bank’s business conduct that “involved questionable and/or reckless business practices or material non-disclosure, with or without the intent to defraud depositors and other creditors”.
Head of forensics at ENSafrica, Steven Powell, said dependent on what facts emerged, the auditors might come under scrutiny. “Recent corporate disasters in South Africa suggest that previous reforms may not have been sufficient and even greater focus by auditors on identifying fraud is required,” Powell said.
“Because the mandate of the forensic investigation emanates from the Sarb, it is likely that the audit will also be required to scrutinise compliance to banking legislation and the requirements of the Deposit Taking Institutions Act and may also identify instances of non-compliance and irregularity.” KPMG is already under investigation by the Independent Regulatory Board for Auditors in relation to its audits of Linkway Trading, a company owned by the controversial Gupta family, which allegedly swindled the Free State government of R200 million, and the report into an alleged “rogue unit” at the SA Revenue Service.