Details unveiled of KPMG involvement in the VBS corruption scandal

Following an extended period of restructuring efforts, global professional services firm KPMG’s reputation has taken another severe blow in South Africa, this time through allegations about corruption during its business with VBS Mutual Bank involving approximately R2 billion.

VBS Mutual Bank collapsed earlier this year, after which investigations revealed anomalies in the bank’s accounts, wherein R2 billion had been written off by the lender. Incidentally, the collapse and the subsequent revelations came after KPMG had completed an audit at the bank and declared its accounts clean.

The discrepancy in the Big Four accounting and advisory firm’s audit have now been attributed to corrupt activity, after an investigation was conducted by Terry Motau, an agent hired by the South African Reserve Bank to examine the details of the incident. The revelations have prompted the dismissal of the two KPMG Partners responsible for the audit.

Describing what he terms as the “fraud that permeated the regulatory audit of the returns,” Motau explains how the audit led the Registrar to perceive VBS’ finances to be in order, concealing the reality that the bank’s asset levels stood at R180 million lower than its total liabilities, rendering it insolvent by March of last year.

Motau’s account of events points to one Partner in particular by the name of Sipho Malaba, who allegedly received, “very substantial facilities from VBS which cannot be regarded as arm’s length borrowings and were not declared to KPMG.” Thereafter, Malaba “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.”

Despite the deficit’s mentioned above KPMG’s report read that VBS’ accounts, “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.”

Given the level of illicit activity, Motau has called for an auditor’s liability claim to be filed against KPMG from the National Treasury of South Africa to obtain financial compensation for the collapse of VBS. Motau also expects certain members of those involved to be taken into custody upon the conclusion of investigations.

The report comes amid massive restructuring efforts on the part of KPMG South Africa, which was involved in the Gupta scandal last year and subsequently lost a steady stream of business. The CEO at the firm Nlhamu Dlomu recently stepped down to help transform KPMG’s image in the market.