KPMG SHOWS NEED FOR NEW AUDIT RULES

Nhlamulo Dlomu has only been at the helm of the SA arm of auditing giant KPMG for seven months. But she must surely wish she’d never taken the job.

“Clearly what has happened at VBS Mutual Bank has really disappointed me at a personal level,” she told the Financial Mail this week. “I feel let down and it’s difficult not to be angry about it.”

Dlomu, with a solid record at Nedbank and Anglo Platinum, would be justified in being furious. After all, she only took the job last year, after KPMG admitted the work it did for the Guptas “fell considerably short of KPMG’S standards” and that its “quality controls” around a report compiled for the SA Revenue Service were not up to scratch.

Several KPMG top brass left. In their place came Dlomu with a pledge that “we are working hard so that this never happens again”.

Fast-forward to March 2018. VBS Bank is placed under curatorship after it ran out of cash. Anoosh Rooplal, who was appointed as a curator, then finds an unholy mess, partly due to KPMG.

So on Friday Dlomu announces that the KPMG partner responsible for the VBS audit, Sipho Malaba and another partner, Dumi Tshuma, have resigned. Their sin? Having personal loans from VBS that they didn’t declare to KPMG, as professional rules stipulate. Dlomu couldn’t say why they’d failed to declare this. “The rules are straightforward — when someone chooses not to do that, I don’t know what motivates them.”

Either way, KPMG can’t afford this scandal. Already, revenues are falling and clients are leaving. Dlomu admitted there has been “an impact on revenues”, though she would not put a number on it, arguing this is competitive information.

But if KPMG is keeping its head above water now, it will take a potentially fatal blow if it’s fired by any of the big banks it audits: Nedbank, Barclays Africa, Standard Bank or Investec. Last year, Old Mutual paid KPMG’S global business R261m — so it’s not pocket change at stake.

But hard questions must be asked of KPMG as well as VBS Bank’s internal auditors, PWC.

VBS’S accounts were a mess. As the Reserve Bank said this week, the “corporate deposits” on VBS’S balance sheet were supposedly R900m, yet it is “uncertain whether all of these deposits represent true deposits”.

Also: “The integrity of the financial information at VBS is highly compromised . . . there may have been considerable manipulation of the bank’s financial information.”

For example, VBS’S accounts include a R1.8bn asset for which the curator hasn’t been able to “confirm this constitutes real and tangible assets”.

The ultimate losers? The 13,703 individuals and 7,668 stokvels that used VBS.

Why KPMG keeps enduring scandal after scandal is a question for Dlomu to answer. Is there a rotten culture of taking shortcuts?

It has to be said, though, that it’s not just KPMG. Other firms have their own skeletons — Deloitte with African Bank and Steinhoff, and PWC with VBS. And yet, some audit firms still resist efforts by the regulator, the IRBA, to bolster independence — like requiring companies to change auditors every 10 years, and splitting their auditing and consulting arms.

IRBA CEO Bernard Agulhas says: “These are all things we’re doing to restore confidence in the profession, yet there is still resistance. We understand it may affect their revenue, but independence will always trump commercialism.”

At this point, with some new auditing scandal bubbling to the surface every other week, it would seem the audit firms have no scope, or credibility, to resist those changes.