AGE OF (UN)ACCOUNTABILITY
Outcry after KPMG signs ‘confidential’ settlement with VBS Mutual Bank liquidators
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
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FUKPMG.
This is not about transparency. KPMG should be struck off the list of legal auditing firms. How is it possible that a private deal can be reached when KPMG has directly enabled crime through their negligence. I find the sight of the huge KPMG logo prominently displayed on the opulent building in Cape Town physically repulsive and if I had the power I would shut them down permanently, sell all their assets and donate the proceeds to all the poor South African their negligence affected.
So kuch for KPMG’s management promising transparency. Nobody should do business with these bunch of crooks. Imagine an auditor whose job it is to check that the money is safe, is himself caught stealing the money! Spineless
KPMG top dogs were fired after the Gupta scandal. Clearly not enough were fired and a culture exists that is at odds with ethical considerations. Strike them off: does KPMG behave like this other countries? Probably not, which raises even more questions.
Jail time is the only answer. They all have their nest eggs firmly secured overseas, and will be appointed in other roles as the blight on their CVs is ignored with a wink and a nudge.
Outcry? Where? It will take more than a FUKPMG to be rid of these sharks and they are too well connected to the crooks in Gvt for their long term goals of profit to be affected
This is completely unacceptable.
KPMG should be banned in SA
Corruption is unfortunately not limited to government. Hiding behind legal niceties is also not limited to the ANC and its cronies. Too much of the law is written by, and aims to protect, those with excessive wealth. I strongly support the Trade Unions in their quest for full transparency in this saga which has caused such widespread suffering and loss to so many South Africans
KPMG signed off on cooked books. Quite right. But who is going after the well-known looters?
Is this a case of “big” business collusion hiding “big” business corruption?
So much for democracy and transparency. The firms we employ to ensure these nefarious practices don’t occur are exactly the firms which are complicit: KPMG, PwC, Accenture, McKinseys, et al. And, to top it off, the money made leaves SA to their home countries. Are there any large corporations out there that are honest and have integrity? I can’t think of one right now.
It’s only to stop the names of top corrupt ANC & EFF politicians from getting out, that are actually involved in the collapse of the VBS bank. That’s all!
You have hit the nail right on the head !
This secrecy is definitely not in the public interest!
Hopefully, someone will challenge this in court.
If COSATU wanted to demonstrate that they are anti-corruption as an organisation, they may be tempted to take action closer to home – that is, within the Alliance.
It would appear that KPMG is no better than the ANC when it comes to honesty and accountability. The absolute trust and esteem these big auditing firms enjoyed over many years has now been replaced by suspicion and mistrust.
All in bed together
I do not often agree with trade unions, however this time, I support them fully!!
I really hope that someone finds a way of “lifting the lid” on what appears to be very murky.
Surely the thousands of folks who lost what they entrusted to VBS (and by extension KPMG) have a right to transparency?
KPMG, Bain, McKinsey. Must be placed on Treasury black list. However, Treasury says someone has to motivate this, it cannot act unilaterally. Have any of these firms been placed on the list? If not, why not?
What were the Liquidators thinking, and why. KPMG can’t get away with criminal activity in SA…. not with our SAPS and NPA…. oh!!
Well done COSTATU! KPMG is so tainted and sadly the auditing industry in general!
Absolutely shocking. For once I side with a union. Disgraceful that KPMG should be allowed to get away with their part in fraud.
I hope Cosatu takes the matter to court to have the settlement details made public. And if KPMG pays VBS a refund for the missing R2bn, then it’s continued operation in the country can be considered.
But what about those who actually stole the money? Five years later, no trial, and no recovery of the money. .
It is one thing to settle with the liquidator, and money changes hands, under the table in this instance. But surely KPMG committed crimes which the liquidator cannot absolve if from. It is up to the NPA to prosecute the company for those crimes. Oh, I forgot, the NPA is useless and toothless, and five years after the Motau report the NPA has still not successfully prosecuted anyone. What about the KPMG partner, Malaba, without whom the VBS fraud could not have happened. Surely the liquidator cannot absolve him? NPA – what are you doing???
Correct.
The PIC votes at AGMs FOR or AGAINST the appointment of Auditors should be public. I certainly will vote against such appointments when this type of Auditor
is up for election at any time I have the chance as shareholder. The same applies to other organizations and funds representative of large holdings of pensioners funds.
Shameful behaviour by KPMG management.
Surely the decision makers at KPMG should be liable for conspiring to commit fraud?
Just asking
How is it possible that KPMG SA is still operating?
The first the general public became aware of an entity called VBS Mutual was when it gave Zuma a loan to repay his Nkaaaaandla upgrades. Anyone who didn’t take their money and run at that point was courting inevitable risk, which concluded in a dramatic implosion of the bank. We all knew who Zuma was by then. No one could have been surprised there.
At the same time, the same corporate corruption-enablers’ names keep cropping up . Again, who can be surprised … oh, wait, you thought only the ANC was corrupt… and there are no enablers in the mix? Tut tut.
The adage “crime does not pay” obviously does not apply to KPMG. Outa should get involved here and force them to disclose this so-called settlement, and in fact appeal it! Harsher penalties should have been given to the two ‘capi’ van Niekerk and Basson and they should be disbarred permanently.
The VBS mess must be exposed for all to see. It is wrong for the liquidator to accept money from KPMG to sweep it under the rug.
In all audit, accounting and legal firms there are rotten apples at partner level that sell their souls to criminal enterprise management to increase their profit share. There are also many honourable and dedicated people fighting relentlessly to take out the trash!
Maybe the solution is for auditors of public companies to be appointed by the JSE and rotated every three years. Funding could be by a turnover based levy paid to the JSE – there certainly is plenty of statistical evidence of what a decent audit costs.
The trend of their past dealing speaks for itself ! They are rotten !
Kick KPMG of of the auditing business. If I help criminals I can be charged with aiding and abetting criminal activity.
Is this not what KPMG has done. Thieves and crooks. Trust that KPMG will be standing for parliament at the next elections. They can then share the great company of the ANC who are experts in cover ups. Million dollar couches come to mind.
First of all thank you to Daily Maverick for its high standards of journalism, it excellent articles, and dedication to facts. This shows how insidious the lure of corrupt acts ruin one’s moral compass for life. Fraud, bribery and corruption are unlike drug addiction. There are no rehab centers, only sticky webs of lies, lies, and more lies that lead one way to prison or death by assassination or suicide. Never a good ending. But worse, the damage done to the victims of these evil crimes. Once again, thank you DM.
the company needs external auditors and need to comply to king iv