KPMG currently faces an investigation by the Independent Regulatory Board for Auditors (IRBA) over its role in the alleged Gupta money laundering scheme, which saw a family-related business sign off a R30 million wedding as a business expense – paid for with money taken from funds paid by the Free State government.
According to reports last week from amaBhungane,citing many emails from the Gupta leaks, Gupta businesses took money meant for an agricultural project in the Free State, and ran it through bank accounts in India belonging to businesses owned by the family.
Two different Gupta-linked companies – Linkbay Trading and Accurate Investments – were then billed for and paid the tune of R30 million for wedding services, to cover the cost of the infamous 2013 Gupta wedding at Sun City.
According to amaBhungane, KPMG – Linkbay’s auditors at the time – not only did not pick up on the laundering taking place, but also ignored warnings from junior auditors on the matter.
KPMG came out strongly against the accusations, saying that it was only the auditor of Linkway, and none of the other companies mentioned in the report, including Esitina -the Gupta firm responsible for the agricultural project.
The auditing firm cut off ties with the Gupta family in 2016 as was widely reported, citing ‘reputational damage’ as the primary concern. This was enough not to raise too many eyebrows at the time, but now the IRBA has more questions, announcing it would be looking into the matter.
What the IRBA can do
Speaking to Bruce Whitfield on CNBC Africa, IRBA chief executive, Bernard Agulhas, clarified the body’s powers.
According to Agulhas, while an auditing firm is beholden to the body’s regulations and policies – including immediately reporting any dodgy auditing practices as soon as they turn up – in cases where misconduct is suspected, it’s not the company as a whole that faces investigation.
Only individuals are targeted for investigation, and the IRBA only has the power to suspend or revoke the licences of those individuals, following appropriate disciplinary processes.
Individuals found guilty face punishment anywhere from a warning, to a fine of R100,000, or being de-registered as an auditor in South Africa.
“This is better, because otherwise individual auditors would be hidden, and would just move to another company and do the same thing,” Agulhas said. “It is better to remove individuals and their licences completely.”
So this means that if evidence of misconduct emerges from the investigation, KPMG may suffer more reputational damage, but ultimately only those implicated will face any action, as far as the IRBA is involved.
According to Agulhas, only two people are currently implicated in the Gupta case – CEO of KPMG at the time, Moses Kgosana, and the engagement partner who was involved at the time.
Kgosana has defended himself against the allegations, and said he will work with any investigation to clear his name.
Agulhas said it was in everyone’s best interests to complete the investigation as soon as possible, however this was up to the auditors. KPMG is still within the 30-day window in which it is allowed to respond to the investigation.
Following that, the IRBA will start asking for reports and files related to the case, to see if there was any wrongdoing.
Agulhas said that KPMG was complying fully with the investigation.