KPMG Dropped by South Africa's Auditor-General After Bank CrisisBy and
Decision is biggest client loss amid series of controversies
KPMG South Africa has pledged to restore public trust
South Africa’s Auditor-General terminated its contract with KPMG LLP’s local unit after the accounting firm became engulfed in a series of scandals, including signing off on the accounts of a failed local bank.
The decision marks the most significant blow yet to the embattled auditor, which is introducing a range of reforms in an effort to stem the outflow of business in South Africa. Publicly traded customers including clothing retailer The Foschini Group Ltd., financial-services firm Sasfin Holdings Ltd., and consumer-goods distributor AVI Ltd. ditched the company last year, while its banking clients are considering their position.
“The announcement by the Auditor-General has come at a time when we are taking significant steps toward building a firm that’s in tune with the needs of our country,” KPMG South Africa Chief Executive Officer Nhlamu Dlomu said in an emailed statement. “It is very much our hope that this announcement will prove to only be a temporary break in the relationship.”
KPMG said Sunday that all staff now face background checks every two years to try and identify signs of potential malpractice, and said it would call in international colleagues to help probe the quality of past audits. The auditor’s reputation was initially tarnished over work for companies owned by the politically connected Gupta family, while it’s also withdrawn the findings of a report about the country’s tax authority.
The administrator of VBS Mutual Bank, which was seized by regulators last month after it was unable to repay money owed to depositors, withdrew the bank’s 2017 annual financial statements on Monday, saying they contained “material misstatements.” Two KPMG partners quit in the wake of the audit after facing disciplinary proceedings for not disclosing financial interests related to the bank.
“Recent media reports relating to the external audit of VBS and the conduct of KPMG audit partners are some of the reasons that prompted the decision to withdraw all KPMG audit mandates with immediate effect,’ Auditor-General Kimi Makwetu said in a statement. The Auditor-General checks the accounts of South Africa’s public sector.
The Auditor-General also canceled Nkonki Inc.’s contract following media reports on matters arising from the shareholder transactions, the institution said.
— With assistance by Alastair Reed, and Renee Bonorchis