KPMG South Africa to review past audit work amid fresh scandal
The firm has launched a review into all audit work completed in the past 18 months and will conduct background checks of staff every two years, following a series of scandals
KPMG’s embattled South African branch has launched an “unprecedented” review of all audit work undertaken in the last 18 months, in an effort to regain public trust following a tumultuous year and fresh scandal last week.
The firm also promised to conduct background checks of staff every two years, which will be done by an external, independent party and co-ordinated with KPMG International.
KPMG also said it would support its staff whistle-blowing programme by setting up a hotline, as part of a series of changes aimed at bolstering public trust and restoring its reputation.
The latest blow to KPMG SA came last week, as senior partners Sipho Malaba and Dumi Tshuma resigned amid a growing scandal surrounding the firm’s audits of VBS Mutual Bank. VBS was placed under curatorship in March after it was unable to repay some of its clients’ deposits.
As the lead audit partner on the account, Malaba gave the bank an unqualified opinion when signing off on its accounts to the year ending March 2017, despite the curator being unable to find nearly R900m (£53m) reported as part of corporate deposits.
An investigation into the two men’s conduct was launched, and KPMG admitted that Malaba and Tshuma had misled them about their relationship with the bank, particularly in relation to a series of undisclosed loans.
The allegations against the two partners included failure to comply with the firm’s policies and procedures regarding the disclosure of relevant financial interests.
Facing disciplinary action, the pair quit on Friday.
Nhlamu Dlomu, CEO of KPMG SA said the “disappointment and anger” in relation to the VBS audits is “palpable.”
Dlomu took up the post of chief executive last year following a shake-up of senior management after the Gupta family scandal engulfing KPMG reached its summit.
The firm was accused of facilitating the wealthy Gupta family in tax evasion and corruption, who had been dubbed South Africa’s shadow government for their close ties and influence over ousted President Zuma.
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Although an internal investigation found no evidence of illegal behaviour by KPMG staff, it did find that work done “fell considerably short of KPMG’s standards” and that the firm missed many red flags in relation to the family’s accounts. Two other investigations into KPMG’s conduct surrounding the Gupta accounts continue.
After the scandal erupted, at least eight senior KPMG staff left their jobs and the firm lost many clients. Meanwhile, the Gupta family is said to have fled the country.
Also entangled in political scandal, VBS bank came to public prominence in 2016 after granting then-president Zuma a mortgage to repay taxpayer money he had spent upgrading his private residence.
Dlomu said: “This has been a very disappointing episode for KPMG. There can be no tolerance, however, of any conduct that compromises our reputation and we have moved decisively to deal with the situation”.
She added: “We realise that to build a KPMG that we and South Africa can be proud of, one that has quality and integrity at its heart, we must be prepared to adopt and embrace significant change to our culture and partner conduct. Some of the steps we are taking are not easy, but we are in a position where such measures are unavoidable requirements to rebuild trust.”
The firm is said to be reviewing at least 200 files of audit work completed within the past 18 months.
