KPMG ‘sympathetic’ to retrenched VBS staff
AUDIT, tax and advisory services company KPMG sympathises with ex-VBS Mutual Bank employees retrenched after it misstated the doomed institution’s financial position but insists that it has no legal duty to compensate them.
KPMG has told the Constitutional Court that the R230 million damages claim by 60 retrenched former VBS employees is of a kind never before awarded in an auditor liability case.
Instead, the company, which was appointed to audit the now-defunct bank in 2017, wants the matter to instead be heard by the Supreme Court of Appeal (SCA) and not the apex court.
KPMG has also asked the Constitutional Court to refuse the ex-VBS employees’ application for leave to appeal the North Gauteng High Court’s May ruling giving them a month to amend their particulars of claim or their case will be struck out with costs should they fail to meet this deadline.
The ex-VBS employees approached the apex court and filed a conditional appeal to the SCA.
According to KPMG, the former VBS employees seek to bypass the SCA when the matter requires the consideration of the country’s second-highest court as they seek to establish a rule that auditors are liable for damages suffered by employees of companies they audit.
KPMG insisted that it acknowledges and sympathises with ex-VBS staff’s financial position but disputes that they are now unemployable due to its conduct or that of its employees.
The former VBS employees blame fraud, corruption and money laundering accused former KPMG chartered accountant, director and VBS audit engagement partner Sipho Malaba for misstating the bank’s financial position in 2017, which led to its collapse a year later.
Malaba is also accused of preparing an audit that did not comply with the accepted accounting practice.
In its answering affidavit filed on Tuesday by Bowman Gilfillan senior associate Rachel Potter, KPMG warned that recognising the claim by the 60 ex-VBS employees would give rise to limitless liability, which is precisely the concern expressed by courts about recognising new categories of actionable economic loss.
“The applicants (the ex-VBS employees) were ‘far removed’ because the audit report was not prepared for their own benefit,” reads KPMG’s answering affidavit.
According to the company, the ex-VBS employees, like the general public, have no claim arising from the misstatements in the audit report.
“KPMG owed the plaintiffs (the former VBS employees) no legal duty, and the plaintiffs have failed to set out the necessary facts to establish that KPMG acted wrongfully,” Potter stated.
The company also cautioned that if the courts were to recognise the ex-VBS employees’ claim there is no reason to preclude all others who suffered similar consequential loss arising from VBS’s liquidation to pursue similar claims.
KPMG said potential claimants would include all employees, shareholders and even creditors.
The former VBS employees want about R170m for loss of earning capacity and the phobia they have developed towards the banking sector, R1m each for emotional shock as well as R450000 for psychological treatment, which will include five consultations each at a cost of R1500 a session.
When VBS collapsed in 2018, the 60 ex-employees, who include a former team leader, marketing specialist, credit manager, tellers, cleaners and drivers, believe they are now unemployable, earned between R47 000 and R280000 a year and put their loss of earnings at over R169.5m.
They are demanding over R230m from KPMG until they reach the retirement age of 65 and blame the company for the collapse of VBS.
Malaba, who also gave regulatory audit opinion he knew to be false, was KPMG’s lead auditor for VBS and had received over R30.3m by March 2018 from the bank and bought a property in Fourways, Johannesburg, through funds from the financial institution as well as luxury cars.
The National Prosecuting Authority accuses Malaba of fraudulently covering up the theft of monies that took place between April 2016 and March 2017 and facilitated the further theft of monies during the same period when he was VBS’s auditor.