Daily Maverick
Dailymaverick logo

Business Maverick

Business Maverick, South Africa

Outcry after KPMG signs ‘confidential’ settlement with VBS Mutual Bank liquidators

Outcry after KPMG signs ‘confidential’ settlement with VBS Mutual Bank liquidators
Neesa Moodley
By Neesa Moodley
30 Jan 2024
Facebook
38
Trade union Cosatu has come out swinging after auditor KPMG and the liquidator of VBS Mutual Bank reached an out-of-court settlement cloaked in secrecy earlier this week.

In a brief joint statement, KPMG and the liquidator of VBS Bank, Anoosh Rooplal, confirmed they had reached an out-of-court settlement, noting that “the conclusion of this legacy matter relates to the KPMG audit of the bank for the financial year ended 31 March 2017”.

More than R2-billion was stolen from the bank in an elaborate fraud heist, and KPMG was hauled to court by the liquidator on the grounds that it had signed off on the fraud. Rooplal had initially claimed damages of R864-million plus interest, but has now been sworn to secrecy following the out-of-court settlement. 

Cosatu calls for transparency


Matthew Parks, the acting national spokesperson for Cosatu, said the “veil of secrecy is a disservice to the countless workers and residents of municipalities who have suffered due to the financial mismanagement and corruption at VBS, which KPMG, as the auditor, failed to prevent or expose.

“The confidential nature of this settlement shields crucial details from public scrutiny and accountability, denying workers and pensioners their right to full transparency in a matter that has significantly impacted their livelihoods.

“The incestuous relationship between some auditors and the very companies over whom they are legally obliged to audit their financial reports remains a perennial weak link in our fight against crime and corruption.  

“The federation reminds Parliament and Treasury of the agreement and need to amend and strengthen the Auditing Profession Act to require the mandatory rotation of auditors and auditing firms every five years to help prevent cosy and often corrupt relationships developing.”

Gupta links went on for ‘far too long’


It’s unfortunately not the first time KPMG has been linked to dubious activities. The auditing firm was also responsible for auditing Gupta-related companies for 15 years until 2016 and the company eventually issued a statement saying: “KPMG South Africa regrets that its association with the Guptas and their business entities went on for far too long.”

More recently, the firm came under fire for its involvement as an internal auditor of Tongaat-Hulett, which is under business rescue.

In 2022, the US Public Company Accounting Oversight Board (PCAOB) fined KPMG South Africa and two of its partners, Cornelis van Niekerk and Coenraad Basson, $275,000 for supervisory failures and violation of accounting rules related to the use of an unregistered accounting firm.

KPMG ordered to review quality control and procedures


The PCAOB found that KPMG South Africa used an unregistered firm, KPMG Chartered Accountant Zimbabwe (KPMG Zimbabwe), in a substantial role which required KPMG Zimbabwe to have registered with the PCAOB. However, KPMG South Africa and Van Niekerk failed reasonably to supervise KPMG Zimbabwe so that its participation in the audits complied with PCAOB registration requirements.   

Moreover, during the 2017 audit, KPMG South Africa, Van Niekerk, and Basson used a series of unreasonable adjustments to reduce KPMG Zimbabwe’s recorded hours by 77%. KPMG South Africa relied on the downward-adjusted hours to conclude that KPMG Zimbabwe had not exceeded the PCAOB substantial role registration threshold and to inaccurately report that KPMG Zimbabwe had incurred only 17% of the total audit hours. 

The PCAOB imposed a $200,000 civil money penalty on KPMG South Africa and ordered the firm to review and, if appropriate, improve its quality control policies and procedures. The PCAOB also imposed a $50,000 civil money penalty on Van Niekerk and barred him from associating with a registered public accounting firm, with a right to petition to terminate the bar after two years.

Van Niekerk’s penalty would have been $100,000, but the PCAOB imposed the lesser penalty based on consideration of his financial resources. Finally, the PCAOB imposed a $25,000 penalty on Basson and suspended him from associating with a registered public accounting firm for one year. 

“KPMG South Africa’s failure reasonably to supervise the participation of an unregistered firm after a prior enforcement action is particularly serious,” Patrick Bryan, the director of the PCAOB’s Division of Enforcement and Investigations said at the time.

Out-of-court settlements are usually labelled “confidential”, effectively gagging both parties until the matter is signed off with a court order. However, when there are so many strikes against the same company, with large fines imposed, one has to wonder at what point regulators will step in. DM

Categories:

Tags: