/ 20 April 2018

KPMG exec embroiled in VBS probe

Paper trail: President Muhammadu Buhari
Paper trail: President Muhammadu Buhari

A senior executive at auditing firm KPMG who was entrusted with restoring public trust amid the embattled company’s scandals is at the centre of an investigation into an almost R177‑million investment made through VBS Mutual Bank by a Namibian bank.

As KPMG struggles to shrug off controversy about its auditing practices, it has now emerged that its internal investigation, conducted by Bowman Gilfillan, is probing former partner Sipho Malaba’s role in the fight between VBS Mutual Bank and the Bank of Namibia. The Windhoek bank is seeking to recoup almost R177‑million that was “invested” via the embattled mutual bank.

The investment was made by the now defunct Small and Medium Enterprises Bank (SME Bank) based in Namibia in August 2016, using Mamepe Capital as fund manager, and was paid into three accounts held with VBS Mutual Bank.

But the funds were mysteriously withdrawn within a few months, shortly after the millions of rands in deposits were made into three bank accounts held by the SME Bank.

The Bank of Namibia, which is the regulator of banks in that country, instituted an investigation after it took over the SME Bank’s operations, which went insolvent in March 2017 because of its financial woes and unaccounted-for funds.

In its attempts to recoup the missing funds from the SME Bank, the Bank of Namibia enlisted the services of KPMG to investigate and trace the deposits into VBS Bank to establish where the almost R177‑million investment had gone.

Malaba, who was KPMG’s lead audit partner on VBS, which has been under curatorship since last month, also led the Bank of Namibia’s request to trace the funds.

According to VBS curator Anoosh Rooplal, R900‑million of VBS’s reported deposits of R2.9‑billion could not be confirmed. Malaba signed off on the external auditor’s report on VBS’s accounts until July 2017. The Reserve Bank said that VBS had experienced liquidity problems for at least the past 18 months. KPMG revealed that Malaba and another partner, Dumi Tshuma, had not fully disclosed that they held loans with VBS.

Malaba had been introduced by the new KPMG chief executive, Nhlamu Dlomu, as part of the team that was to support her in restoring public trust in the auditing firm after two major scandals. 

Last week, the two resigned before disciplinary proceedings could take place. Rooplal then withdrew VBS’s financial statements for the year ending March 31 2017 “as they contain material misstatements and are no longer considered to be reliable”.

The bank’s liquidity troubles stemmed, in part, from holding municipal deposits, despite the treasury’s view that this was unlawful. The fate of these deposits, as well as R370‑million held for the Bophelo Beneficiary Fund and its administrator, Bophelo Benefit Services, and owed to the widows and orphans of former mineworkers, is uncertain.

Documents seen by the Mail & Guardian, including Bank of Namibia board minutes, reveal reports by Malaba to the bank confirming the deposits made by the SME Bank and Mamepe Capital, and stating that VBS Mutual Bank had entered into legitimate contracts. In his report to the Bank of Namibia, Malaba said that between August and October 2016, SME Bank had deposited R70‑million and Mamepe Capital had deposited R175‑million.

Between October and November 2016, about R69‑million had been moved from VBS to elsewhere. The Bank of Namibia wants to recoup R177‑million that it believes was never meant for investment.

This week, Malaba said his role was to trace the funds, as per the Bank of Namibia request, because no audit had been requested.

“We traced that money that was coming into VBS from SME, and that money moved elsewhere. It was confirmed and agreed that this was not an audit. They [the Bank of Namibia] asked us to conduct the trace because we were auditors of VBS. There was nothing untoward in the work we did and the Namibians are following the money. I don’t see how this is made an issue against me; there was a court case between the parties [VBS and the Bank of Namibia], so if there was an issue someone would have taken me to jail,” said Malaba.

Minutes of a Bank of Namibia board meeting on February 24 2017 reveal that VBS had been reluctant to provide information about the deposits and only complied after legal action took place.

“SME Bank is likely to become insolvent if the funds invested in South Africa are not recovered, because the loss of an investment of this magnitude does not only expose SME Bank to liquidity risk, but also to insolvency as this amount will have to be written off,” read the board minutes. Barely a month after this board meeting, the SME Bank was liquidated.

VBS’s chief executive, Andile Ramavhunga, said the bank had co-operated with Namibia and denied that they had tried to withhold information. He said VBS was used by the SME Bank as an intermediary. “The monies were held in various investments and any proceeds of the investments would go to the SME Bank. It is them who can answer as to what happened to the monies”

Rooplal said he was still investigating all the deposits and couldn’t confirm the Namibian deposits.

KPMG has not yet responded to questions posed by the M&G.