JUST IN: KPMG hopes AG termination of contracts will be temporary move

Johannesburg- KPMG CEO Nhlamu Dlomu said on Tuesday afternoon that she hopes Auditor General Kimi Makwetu’s decision to terminate the company’s services will be a “temporary break”.

“Every client is important to us and the announcement by the Auditor General has come at a time when we are taking significant steps towards building a firm that is in tune with the needs of our country,” Dlomu said in an emailed statement.

Earlier, Makwetu announced his office’s decision to end its government auditing contracts with KPMG and Nkonki Inc, citing reputational concerns involving both companies.

• READ: Government cancels auditing contracts with KPMG  and Nkonki Inc

Dlomu promised to keep the AG “closely appraised of all the changes” the auditing firm is making and will work with his office to “minimise disruption” to the departments and government entities they assist in auditing.

The AG uses various private audit firms – such as KPMG and Nkonki Inc - to conduct audits on its behalf, and to support its auditing staff.

KPMG has experienced a harrowing few days, following the resignation of two partners facing internal disciplinary charges over their audit of VBS Mutual Bank.

The company announced on Sunday that it would review all the work done by its partners over the past 18 months in a bid to regain public trust.

• READ: KPMG unveils 4-point plan to restore integrity

Makwetu said in 2017 that he would wait for the results of various investigations into the auditing company’s handling of Gupta accounts and a South African Revenue Service report, before deciding whether to terminate its services.

In his statement on Tuesday, Makwetu referred to recent media reports relating to the external audit of VBS and the conduct of KPMG audit partners as the reasons that prompted the decision to withdraw all KPMG audit mandates with immediate effect.

The South African Reserve Bank has commissioned a forensic audit of VBS - currently under curatorship - after R900m was unaccounted for in its deposits. The bank’s 2017 financial statements will also need to be restated, according to a report by Business Day on Tuesday.

The decision by the AG to terminate Nkonki Inc’s contract follows the resignation of its CEO Mitesh Patel last week. Patel resigned after investigative journalism centre amaBhungane revealed that his R107m "management buyout" of the auditing firm was funded by Gupta associate Salim Essa.

Nkonki Inc was not immediately available for comment on the AG's cutting of ties and asked for a list of emailed questions.

The AG is the latest in a series of high-profile clients to end their relationship with KPMG.

In 2017 financial services company Sasfin, energy firm Hulisani and Wits University were among those who terminated the auditing firm’s services.

• READ: SARB commissions forensic investigation into VBS Mutual Bank

The firm now faces renewed pressure with some of its largest customers - Barclays Africa, Nedbank and Standard Bank - reviewing the quality of work from KPMG before deciding whether to terminate their contracts.

The last few months have seen auditing companies and chartered accountans increasingly under the spotlight after revelations about their links to African Bank, Steinhoff and the Guptas.

PwC also under the spotlight

The services of VBS' internal auditor PwC have been suspended by the curator, auditing firm SizweNtsalubaGobodo.

PwC said in an emailed statement on Tuesday that the internal auditor does not provide assurance over the entity's financial statements.

“Our mandate generally concerned the consideration of VBS’ risk management, internal control and governance processes.”

“Internal audit does not ordinarily require the examination or testing of individual transactions or specifically the identification of fraud or the review or consideration of an entity's financial statements”, said PwC chief operating officer Fulvio Tonelli. 

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