EDINBURGH — There are bank robberies in which the villain is obviously armed and dangerous, there is white collar crime, involving fraud like fake signatures and other deceit – and then there is the great bank heist done the KPMG way. The latter entails accountants turning a blind eye to corruption and irregularities, while milking fees out of the transgressors in exchange for papering over the plundering in auditing formalities. The KPMG method was revealed in the Gupta-Zuma state capture scandal, with KPMG helping to siphon taxpayers’ funds out of state departments while cheekily evading tax at the same time. The KPMG heist method has been demonstrated yet again in the collapse of VBS Mutual Bank, which we now know was a hive of corruption at a time when KPMG personnel gave it a bill of clean health. Unlike bank robbers, who routinely do time in jail and are shunned by society, KPMG auditors seem to get away with their nefarious deeds. So much so that KPMG is still in that club of Big Four auditors that investors around the world are reliant on for checking the books of listed entities. KPMG professionals and bosses are still welcome at golf clubs and, last time we looked, at gatherings like the World Economic Forum, too. – Jackie Cameron
By Thulasizwe Sithole
KPMG South Africa has come under new criticism after a report was released last week looking into lender VBS Mutual Bank, reports Accountancy Age.
The firm’s South Africa operation has already had a tough year after the corruption surrounding the billionaire Gupta family came to light, says the industry body publication.
“Now, after a report came out last week from Terry Motau, an investigator hired by the South African Reserve Bank, the level of corruption surrounding VBS has become apparent.”
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Motau, reports Accountancy Age, said there was “no prospect of saving VBS” and yet KPMG had given it a clean bill of health in 2017, just months before it collapsed in March of this year.
“On its collapse it was discovered that almost R2bn ($137m) had been siphoned out of the bank through corrupt activities at the lender.
“The two KPMG partners that had been responsible for the VBS audit have now left the firm. Motau is recommending that the central bank and National Treasury of South Africa file an auditor’s liability claim against KPMG to recover damages stemming from VBS’s collapse,” notes Accountancy Age.
Motau speaks of the “fraud that permeated the regulatory audit of the returns”, which he explains totally misled the Registrar into believing VBS was in a sound position financially, when actually its liabilities exceeded its assets by approximately R180m and it was effectively insolvent in March 2017, the industry publication tells its readers.
“It was then discovered that Sipho Malaba, a KPMG partner working on the VBS audit, had obtained ‘very substantial facilities from VBS which cannot be regarded as arm’s length borrowings and were not declared to KPMG’.
“The report added: ‘He gave an unqualified audit opinion in circumstances where he knew the financial statements were misstated. He also gave a regulatory audit opinion which he knew to be false.’
“Motau includes details of different people’s testimonies in his report, titled ‘The Great Bank Heist’, and Phophi Londolani Mukhodobwane, general manager of treasury at VBS and heavily involved in the fraud, testified that Malaba “would have known” about the fraudulent plans.”
The #EFF will brief media at noon for the first time since the #VBS "The Great Bank Heist" report was released. According to the report Floyd Shivambu's brother received R16m from the bank. Since then there have been allegations that Floyd & the EFF received money.
— Genevieve Quintal (@GenMQ) October 16, 2018
Without evidence, continues Accountancy Age, Malaba signed the Auditor’s Report in July 2017 stating that, in KPMG’s opinion, the VBS financial statements “fairly present, in all material respects, the financial position of VBS Mutual Bank as at 31 March 2017, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Mutual Bank’s Act”.
“At the start of his report, Motau writes ‘I trust that, in this case, arrests will be made’. Indeed, a total of 53 individuals were charged by the Democratic Alliance party of South Africa with fraud, corruption, bribery and racketeering.
“Malaba was among those charged, Motau concluding that the accountant was ‘complicit in the cover-up of the vast ‘cash hole’ in VBS as at 31 March 2017 by signing a fraudulent report on 17 July 2017’.
“While Motau concludes that only one key KPMG accountant was guilty of fraud, the discovery comes at a time when KPMG South Africa is already teetering on the edge.”
With so many big clients leaving the firm in recent months, questions remain over whether it will survive this wave of scandals, comments Accountancy Age.
“Just off the back of repaying fees from the Gupta family incident, KPMG is now facing investigations and possible further penalties or sanctions,” it adds.
