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The recent confidential settlement agreement reached by KPMG South Africa with the liquidators of VBS Mutual Bank has caused a stir amid calls for transparency and greater accountability in corporate governance. The controversy springs from KPMG's role in the massive fraud heist at VBS Bank, which saw over R2-billion misappropriated.
In a terse announcement, both KPMG and VBS Bank's liquidator, Anoosh Rooplal, acknowledged an out-of-court settlement regarding KPMG's audit work for the bank done during the financial year ending March 31, 2017. Initially, Rooplal aimed to recoup damages totaling R864-million plus interest; however, the terms of the resolution are now shrouded in secrecy by agreement.
This silence has been met with sharp criticism from various stakeholders, most notably from Congress of South African Trade Unions (Cosatu). Matthew Parks, the acting national spokesperson for Cosatu, has voiced strong opposition to the opaque nature of the settlement, contending that it obstructs public scrutiny and thwarts the full disclosure owed to the workers and residents heavily impacted by the bank's collapse.
Parks highlighted concerns of a "incestuous relationship" between auditors and their client firms, suggesting a conflict of interest that undermines the fight against crime and corruption in the financial sector. He urged legislative modification to ensure a mandatory rotation of auditors and firms every five years, aiming to cut off too-cozy relationships that could lead to corruption.
KPMG is no stranger to legal and ethical quandaries. Their 15-year history of auditing Gupta-related companies ceased only in 2016, followed by admissions of regret over the prolonged association. Furthermore, Tongaat-Hulett's business rescue situation also brought KPMG's internal audit responsibilities into the fray, placing the firm under critical examination once again.
These domestic issues are compounded by international pressure. In 2022, the US Public Company Accounting Oversight Board (PCAOB) levied a hefty $275,000 fine against KPMG South Africa and two partners for their failure to uphold supervisory and accounting rules. Notably, the fine included penalties for improperly reducing reported audit hours, a violation revealed during KPMG's engagement with KPMG Zimbabwe.
The PCAOB's enforcement action against KPMG South Africa was notably stringent, with a $200,000 penalty against the firm and additional sanctions against the involved partners, Cornelis van Niekerk and Coenraad Basson. The oversight board's actions reflect a global impatience with accounting firms that fail to maintain integrity and compliance in their auditing practices.
In light of the confidential nature of the VBS settlement and the history of infractions by KPMG, questions arise regarding the lengths regulators are willing to go before more decisive actions are taken. The persistent issues encapsulate the challenges faced by the accounting industry in ensuring independence, transparency, and accountability.
This development has certainly alerted industry-watchers and regulatory bodies alike, suggesting the potential for future changes in how accounting and auditing practices are governed in South Africa. Time will tell if this situation spurs the necessary reforms to restore trust in the auditing sector and the broader financial services industry.