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Ntsebeza inquiry: KPMG should have terminated relationship with Gupta entities

Jun 26 2018 20:59
Jeanette Chabalala

Auditing firm KPMG should have terminated the relationship they had with the Gupta-linked entities as soon as there were red flags, Adv. Tembeka Ngcukaitobi, who is leading the firm's legal team said on Tuesday.

Ngcukaitobi, who was interviewing the firm's audit risk management partner Neil Morris, said KPMG continued to maintain its relationship with the family based on false information obtained on its client's assessment form. 

The Ntsebeza commission of inquiry, which is commissioned by the South African Institute of Chartered Accountants (SAICA), is headed by veteran lawyer Dumisa Ntsebeza. It heard on Tuesday that the form repeatedly gave the controversial family a low risk profile. 

This happened while the family continued to receive negative media coverage.

Some of the questions on the assessment form wanted to establish if the family or their entities were involved in any political issues or receiving bad press - however KPMG in their answers said "no". 

The inquiry zoomed in on the work KPMG had done for Gupta-linked firms' members from January 2013 to determine whether KPMG contravened the institute's code of professional conduct.

Ngcukaitobi said it would have been justified to terminate the firm's relationship with the family because it was maintained based on false completed questionnaires. 

"It was clear...that the results of the assessment was wrong...they didn't do the background check. They randomly pointed the answer 'no'. It seems to me it was misleading," said Ngcukaitobi.

He said any objective observer would notice that the questionnaire was filled with "routine" responses.

"There was no application of mind here because you knew the facts... either it was a routine or deliberately falsified."  

Adv. Ntsebeza also questioned why KPMG did not do a thorough investigation into its client when they were in the public domain.

He said the Gupta family made headlines, some of which included money laundering which the firm should have picked up.

But Morris conceded that they had not "applied our mind appropriately".

Asked if the people who were handling the questionnaire were negligent, Morris said: "I'm not of the view that they intentionally answered the questions incorrectly. My view is that the question was rolled over. They simply accepted it and treated it as an administrative exercise."

The inquiry also looked at KPMG's conduct in auditing the accounts of Linkway Trading that were allegedly used to funnel money from the controversial Free State Vrede dairy project to fund the infamous Sun City Gupta wedding in 2013.

Previously, investigative reporters from AmaBungane and Scorpio revealed in their #GuptaLeaks report that Linkway played a crucial role in allowing the diversion of cash earmarked for the Vrede dairy project to reimburse most of the wedding expenses – R30m to be exact.

The publications reported that by allowing Linkway to account for the wedding as a "business expense", KPMG further ensured that the Guptas paid zero taxes on their Free State government windfall.

The wedding celebrations were held at Sun City over four days at the end of April and beginning of May 2013.

Three months later, on July 31, the Guptas' Linkway Trading, based in South Africa, presented Accurate Investments Ltd, a second Gupta-controlled shell company in the UAE, with a four-page, itemised invoice for expenses for the "V & A Function … at Sun City" (The bride and groom were Vega and Aakash).

But Morris said: "I know nothing about the flow of funds...the information that I know is from the Gupta leaks and what's been in the media." 

Morris said the wedding was paid by Accurate Investments Ltd based in Dubai and the money went to Linkway Trading.

Accurate Investments is apparently owned by the father of the bride, he said. 

Earlier on Tuesday, prof. Wiseman Nkuhlu, chairperson of KPMG South Africa, told the inquiry that in certain cases, such as the Gupta and South African Revenue Services (SARS) matter, individual employees failed to follow due processes.   

He said when he joined the firm, it was in crisis.

"The firm had suffered a severe loss of public trust on account of its alleged association in recent years with episodes of state capture and corruption.

"I knew that helping restore KPMG (SA) was going to be both difficult and challenging and that I would have to deal with the disappointment and anger of South Africans against a firm that in their eyes had committed an unforgivable transgression of being complicit in state capture and damaging SARS," Nkuhlu said.

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kpmg  |  sars  |  gupta brothers  |  state capture  |  sa economy
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