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05 Jul 2018 09:20
KPMG is a subject of several investigations since the revelation of allegations of questionable professional conduct in the audits of Gupta-owned companies and its role in the so-called rogue unit report. (Reuters)
An independent probe into the role of a former KPMG employee, who audited a Gupta-owned firm alleged to have been used to divert funds earmarked for the Vrede dairy project to foot a multimillion bill for a family wedding, began on Wednesday.
The Independent Regulatory Board of Auditors (IRBA) seeks to establish whether Jacques Wessels, who audited Linkway Trading, was “grossly negligent on several occasions”.
At the heart of the probe is the flow of funds into the small company accounts which was never questioned by KPMG.
The regulatory board’s first witness, Janica Boshoff, stated that Wessels had identified a “significant risk” in Linkway’s revenue, but did not address any of the overstatements.
One of the unusual transaction, she said, was the loan schedule on Linkway’s audit file.
“Linkway received R35-million from a company called Island Site, but also paid R54-million to Island Site. Linkway stated that the loan was for business purposes,” said Boshoff.
Boshoff, who is IRBA’s audit investigator, stated that the frequency of funds flowing into small company like Linkway should have been questioned by Wessels.
Linkway Trading has no employees, but only two directors.
“For example, 39 transactions were received from Island Site, and 16 made to Island Site.
That does not make business sense,” she added.
“This is a significant risk that was never flagged.
The disciplinary hearing is led by Advocate Alan Dodson.
Wessels was responsible for the audit of Linkway for the year ended February 28 2014.
According to the charge sheet, Wessels failed to obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
He also failed to obtain sufficient audit evidence relating to disclosures in the financial statements of Linkway.
The Linkway transactions amounted to R43.4m. They included, among other things:
Wessels resigned from KPMG in September 2017, before the troubled audit firm could institute a disciplinary hearing against him.
He is facing six charges relating to improper conduct.
KPMG is a subject of several investigations since the revelation of allegations of questionable professional conduct in the audits of Gupta-owned companies and its role in the so-called rogue unit report.
Once a highly regarded audit firm, KPMG South Africa has been losing major corporate clients in the wake of the scandals.
In September 2017, KPMG International admitted in a statement that the audits of the Gupta entities, in certain instances, including Linkway Trading Pty Ltd, “fell well short of the quality expected”.
The firm stated that “the audit teams failed to apply sufficient professional skepticism and to comply fully with auditing standards”.
The IRBA is due to finalise the hearing on Friday. — Fin 24
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