NONGOMA Municipality in northern KwaZulu-Natal has threatened to take KPMG to court, accusing it of performing a poor job in preparing its financial statements.
In a letter of demand written by legal firm Shepstone and Wylie on behalf of the municipality and addressed to KPMG executives, the auditing firm has been asked to pay back R518 000.
This amount was paid to KPMG for its services in preparing the 2017-2018 financial statements.
“Should we not receive the payment within 14 days of the date of this letter (December 14, 2018) our client will proceed to exercise its rights in terms of the main agreement including the institution of legal proceedings for the aforesaid amount,” reads the letter.
The municipality claims the financial statements prepared by the firm were not only late but defective and led to the auditor general making adverse findings on the statements.
Asked for comment on the claim, Nqubeko Sibiya, the spokesperson for KPMG, confirmed receiving the letter from Nongoma Municipality.
“As it is a legal matter, we cannot comment on the specifics of the claim, but we are investigating the situation.”
In the letter, the municipality claims that its chief financial officer (CFO) had made numerous attempts to get the auditing firm to submit the financial statements timeously to the attorney general.
“However, various individuals contacted by the CFO indicated that they had resigned and were unable to render the service due to our client.”
The lawyers claim that the chief financial officer had then notified the firm’s Johannesburg office of this, but was not aware that the KPMG employees tasked with preparing the financial statements had resigned “without giving notice”.
“It was not until August 28, 2018 that KPMG finally submitted a set of defective financial statements to our client for the 2017/2018 financial year.”
This, the municipality claims, meant it only had one day to check the defects in the statements prior to them being submitted to the AG.
“Consequently, our client’s financial statements submitted to the auditor general were found to contain numerous defects which our client was required to rectify within a period of three days.”
The municipality claims the chief financial officer then sent the “defective” financial statements back to KPMG for rectification.
However, the person tasked with rectifying them had also resigned from the firm and the chief financial officer learned of this on the eve of the date on which the statements were due to be submitted, the letter states.
The municipality argues that based on this, it is clear that KPMG failed to discharge of its contractual obligation to the municipality, which was to prepare the statements professionally and to the standard required by the auditor general.
Economist Professor Bonke Dumisa, said the situation was a sad one, adding that it might have to do with some of the challenges that KPMG had experienced in the recent past.
“They will have to let go some people in order to turn the corner,” he said.
In recent months, KPMG has suffered major reputational damage, including being accused of assisting the Gupta family to commit tax evasion and corruption and playing an enabling role in the Zuma-Gupta state capture strategy.
The firm also lost credibility for its claims that a “rogue spy unit” existed at the SA Revenue Service.
The findings were later withdrawn.