Liquidator chases VBS money
‘Negligent’ KPMG sued for R800m
KPMG SA is facing a nearly R1bn lawsuit from the liquidator of VBS Mutual Bank, citing the auditor’s negligence in failing to detect a fraudulent scheme and theft that led to the collapse of the bank.
In one of SA’s biggest banking scandals, VBS collapsed after executives looted almost R2bn belonging to depositors such as municipalities, stokvels and elderly people in Limpopo. This was according to a report commissioned by the SA Revenue Service (Sars) entitled “The Great Bank Heist.”
In court papers filed in the Johannesburg high court this week, Anoosh Rooplal, who was appointed in 2018 to oversee the unwinding of the bank, is seeking to recover R863.5m. That is the amount unlawfully withdrawn or transferred by fraudulent beneficiaries between September 2017 and March 2018.
The claim takes particular issue with the audit opinion issued by KPMG for the year to end-March 2017, when KPMG should have picked up the gross misstatement of the bank’s financial position as a result of the fraud, which was already under way.
KPMG was expected to audit the accounts with “a duty of care” and “with reasonable skill and diligence“, the application says. But this did not transpire.
Instead, says Rooplal, KPMG, “acting through one or more of its employees, wilfully and in bad faith, alternately grossly negligent, alternately negligently, breached its obligations.”
This prevented KPMG from uncovering the fraudulent scheme and issuing an adverse audit opinion stating the bank’s liabilities greatly exceeded its assets for the year to end-March 2017. This prevented the fraud from being uncovered and directly contributed to the loss suffered in the ensuing months, the papers state.
KPMG partner Sipho Malaba was the appointed signatory on the bank’s audit. The forensic report published by Terry Motau in 2018 reveals how compromised Malaba had become as the beneficiary of soft loans from the bank.
Malaba was found to have “obtained very substantial facilities from VBS, which cannot be regarded as arm’slength borrowings and were not declared to KPMG. He gave an unqualified audit opinion in circumstances in which he knew the financial statements were misstated.
“He also gave a regulatory audit opinion that he knew to be false,” the report said.
KPMG confirmed it has received the lawsuit.
“The instituting of a claim against KPMG as auditors was one of the recommendations in the Motau report, which was released in October 2018.
“We are reviewing the summons and are unable to comment further while the matter is before the court,” it said.
The claim comes as KPMG takes steps to restore its image after bruising scandals that include being ensnared in state capture after the publication of a report (the “rogue unit” report) into the activities of the high-risk investigations unit at Sars.