Johannesburg - Disgraced auditing firm KPMG, still reeling from the mass exodus of clients over its business relationship with Gupta-linked companies, now has to deal with a lawsuit over another of its questionable reports.
Former Ithala Limited chief executive Vijay Misra is suing the beleaguered firm for more than R9 million over a report which allegedly cost him his job and affected his health.
In papers filed in the Durban High Court, Misra accused KPMG of issuing a factually incorrect forensic report in 2009 to Ithala which resulted in his dismissal for his alleged role in granting unsecured loans to the politically connected.
“KPMG had plenty of opportunities to publicly withdraw the report when the charges brought against me were found to be baseless but they didn’t and in the end, it cost me my job and reputation,” he said.
KPMG was contracted by Ithala in 2008 to carry out a forensic investigation in relation to possible irregularities in its loan book. Misra said he was shocked when a KPMG report resulted in him being suspended and implicated in 41 charges of misconduct and negligence relating to some of the loans that had not been paid back.
After a year-long disciplinary hearing, he was found guilty on 11 charges relating to three transactions, which resulted in his dismissal from an organisation he had worked for longer than a decade.
These included R5million loaned to Fatel CC to train artisans to work on low-cost housing, an R85m loan for the failed Dolphin Whispers development which reportedly involved controversial businessman Jay Singh and former president Nelson Mandela’s granddaughter Nandi, and a loan of about R12m to Cedar Falls Property belonging to Dr May Mkhize, the wife of the ANC treasurer-general and former KZN Premier Dr Zweli Mkhize.
A Commission for Conciliation, Mediation and Arbitration (CCMA) marathon arbitration, which ran from 2012 to 2015, found the charges against Misra baseless and Ithala was ordered to reinstate and pay him R6.5m. However, he could not be reinstated because his five-year contract as the chief executive had ended in December 2014.
“KPMG played politics at best and were negligent and or unethical at worst. This seems to follow the same pattern as has occurred in the SA Revenue Service report which KPMG has now withdrawn,” said Misra.
He said millions of rand of taxpayers’ money were wasted because KPMG had been advised by a senior counsel, retained by Ithala, that there was no valid case, but the auditing firm still proceeded, charging Ithala to finish the investigation and to testify at the disciplinary hearing and at the CCMA arbitration.
“During cross-examination on May 27, 2014, at the CCMA, a lawyer from the third set of lawyers put to me that the costs to date of the investigations and attorneys and chairpersons fees amounted to R45m,” Misra said.
He responded that he was unaware of the costs involved. Misra used as an example the then KPMG senior manager Philip Burring, who he claimed billed Ithala R160000 for two-and-a-half days of attendance at the CCMA. His lawyer Bruce Macgregor, of Macgregor Erasmus Attorneys, told of how his client suffered two heart attacks because of the stress - one of which occurred while he was being cross-examined at the CCMA, resulting in the attorney having to rush him to hospital.
“He was talking and then suddenly turned grey. The whole thing really took its toll on him,” Macgregor recalled. Misra’s medical expenses, including surgery, cost him at least R370000.
He said the damage to his reputation and health together with the lost years of his life could never be recovered.
“As a chartered accountant, my reputation is everything in this career but what was worse was having my children being asked by their friends if I was a rogue after I was fired,” he said.
KPMG spokesperson Nqubeko Sibiya said the firm was “defending the matter as the action is without merit”. In its responding papers, filed last month, KPMG denied there were misrepresentations in the report and that Misra was “suspended, disciplined and dismissed by Ithala solely on the strengths of the report”.
The firm also denied that the statements made by its officials before the CCMA defamed Misra as they were “quasi-judicial proceedings which are generally closed to the public” and the commissioner made no ruling to make them public.
May Mkhize said she had no comment on the matter and Singh could not be reached at the time of going to print.
To date, KPMG SA has lost 14 clients as a result of the fallout from its connection to Gupta-linked companies and its ill-advised Sars rogue unit report, which the firm has since withdrawn, with Parliament the latest to announce that it was abandoning the firm.
Among the firms which have reviewed their relationship with KPMG are the JSE-listed Deneb Investments, Sasfin Bank, energy investment company Hulisan, Absa Bank, African Oxygen, Bidcorp, DRDGold, Esor, Gaia Infrastructure Capital, Interwaste Holdings, Investec, Lonmin, Randgold & Exploration, Sibanye Stillwater, Vunani and Wesizwe Platinum.
The demise of the auditing firm locally could have a negative impact on employment and the economy, however, as the company employs about 3600 people.