PASSING PLUNDER

How a former KPMG partner responsible for auditing a Gupta-owned company flouted the elementary requirements of his job

Gupta auditor Jacques Wessels either missed all the signs or turned a blind eye to fraud and corruption on a grand scale. Last week’s disciplinary hearing into the former KPMG partner responsible for the audit of Gupta-owned Linkway Trading for the year to February 2014, shows he failed dismally in executing even the most basic duties of an external auditor.

The hearing, instituted by the Independent Regulatory Board for Auditors (Irba), is the first public evidence of the investigation it announced a year ago into KPMG’S work for Gupta family companies.

Irba launched the probe after the Gupta email leaks revealed that KPMG had signed off on the Linkway audit despite the company having plundered state funds to pay for a lavish Gupta wedding at Sun City in 2013.

Four KPMG partners, including Wessels and then-ceo Moses Kgosana, attended the wedding.

The audit regulator’s schedule of charges against Wessels makes a mockery of his 24 years’ experience as a KPMG director, depicting audit errors for which not even a trainee clerk would be forgiven.

Wessels faces six charges of improper conduct as the lead audit partner on Linkway.

Among the more alarming charges are that he intentionally fiddled with Linkway’s financial statements to help the company evade tax, by shifting an amount of R6.9m related to the wedding from “operating expenditure” to “cost of sales”.

This led to Linkway paying only R55,000 in tax when it should have paid R2.1m, according to Irba investigator Janica Boshoff.

Wessels also offset the cost of stocktake services provided by KPMG to Gupta-owned VR Laser Services against accommodation costs for the wedding, even though KPMG’S executive committee had agreed that partners attending the wedding would pay their own hotel bill.

Revealingly, Linkway’s audit contains no documented considerations as to whether it complied with tax laws.

Then again, Boshoff finds that the audit file contains little documented evidence of any kind which could have supported Wessels’ opinion that Linkway’s financial statements were a fair representation of the company’s financial performance and cash flows.

An amount of R26.3m paid to Linkway for a “wedding function organisation” should have set fraud alarm bells ringing immediately, says Boshoff.

The amount constituted 55% of Linkway’s revenue for that year, despite being outside the ordinary course of business, which Linkway’s audit file defined as “construction support and procurement services for related parties”. It also came from Dubai-registered Accurate Investments, a company with unknown ownership.

Wessels failed to interrogate the business rationale for “unusual” revenue transactions amounting to R43.4m, Boshoff says.

“In view of the structure and complexity of the group and extent of funds moved among the companies in the group, relatedparty transactions should have been identified as a significant risk,” says the schedule of charges.

Despite all these red flags, Wessels did not consider the possibility of money laundering, or if he did, he failed to document it.

Boshoff goes further to say that, with no employees and only a handful of revenue and expenditure transactions for the year under review, Linkway lacked “an apparent commercial purpose”.

Yet, on a client assessment form, Wessels rated the company as being low risk, despite negative media reports swirling around the Guptas at the time.

He not only gave Linkway an unqualified audit, but also said in his audit report that the audit was performed in accordance with the international standards on auditing and that he complied with ethical requirements.

Perhaps unsurprisingly, Wessels chose not to give any evidence in his two-day hearing, nor did he call any of his own witnesses to testify.

He declined to comment for this article. The hearing will reconvene on August 4 for oral arguments, with judgment expected 30 days after that.

Irba is still probing the audit work KPMG did for other Gupta companies. This could implicate other partners at the firm, including the eight who resigned in September after a KPMG International investigation found that the firm’s work for the Guptas fell “considerably short” of KPMG’S standards.

And that’s saying something.