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KPMG South Africa banned from public sector auditing

KPMG South Africa has been banned from conducting audits of public sector organisations following poor auditing standards when working with the now collapsed VBS bank and a range of other controversies over the last year.

Although the firm will no longer be allowed to offer audit work for South African government organisations, it will still be able to work with the government when an audit opinion is not required.

The South African auditor-general Kimi Makwetu said on South African talk radio station 702 that the value of government spend on auditing is in the region of R450m ($37m) and that the government has 40 firms working for them. The reputational damage of losing government audit contracts could be of a greater value than any financial losses caused the termination of these contracts.

It was reported that the two KPMG partners who were responsible for auditing VBS had failed to disclose personal financial interest with the bank to the firm. They later resigned, just before KPMG South Africa was due to begin an internal investigation into the matter.

This is another blow to KPMG South Africa’s reputation which has been involved in a range of scandals over the last year, involving their work with companies belonging to the controversial Gupta family. The firm was the auditor for a company owned by the Gupta’s, Linkway Trading (Pty), and had signed off a report which had shown R30m of government funding used to pay for a family member’s wedding. While it was reported that no misconduct occurred, KPMG South Africa admitted they missed several warning signs and a number of senior staff members resigned in the wake of the scandal.

In response to the latest setback, KPMG South Africa issued a press release in an attempt to reassure their stakeholders and the public that they are taking measures to rebuild the trust  lost over the last year. KPMG South Africa chief executive Nhlamulo Dlomu said: “We must be prepared to embrace significant change to our culture and partner conduct.”

One of the measures KPMG South Africa is taking is to perform background checks on all of its partners and their partners/ spouses. This will be coordinated by KPMG international and undertaken by an external company.

Makwetu commented on the profession more generally on the same radio show: “The overall creditability of the accounting and auditing profession in South Africa is in the gutter.” With this coming from the auditor-general, members of the profession in South Africa will need to take measures to regain some credibility and demonstrate their independence from those which they audit or face ongoing reputational damage.

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