Home Accounting and Auditing Ex-KPMG audit partner won’t budge on Irba’s dishonesty charge

Ex-KPMG audit partner won’t budge on Irba’s dishonesty charge

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Former KPMG employee Jacques Wessels has refused to budge on a dishonesty charge he faces from an Independent Regulatory Board for Auditors (Irba) disciplinary committee, even though he admitted to failures in his audit of a Gupta-linked entity, reports Moneyweb.

Wessels is facing six charges from Irba relating to his audit of Gupta family-owned Linkway Trading for the year ended February 28, 2014 – ranging from helping the controversial family commit tax evasion to money laundering.

Since the publicly-held disciplinary hearing started in July 2018, Wessels has opted for his lawyer Azhar Bham SC to speak on his behalf. But on Thursday, Wessels, for the first time, addressed the watchdog’s disciplinary committee panel led by Alan Dodson SC.

Although Wessels has accepted the final charges of the committee, he has remained steadfast in his refusal that he had an “intent to be dishonest” in his audit of Linkway.

“I accept that I have failed on the audit … KPMG has been under pressure since the Gupta-email leaks. Clients have left and people have lost their jobs,” said Wessels, who had been an auditor at KPMG for 24 years.

‘No intent’

“My failure to do what I was supposed to do on the audit has contributed to the negativity and dark cloud on the audit profession. I do not dispute the findings of the committee. But there was never an intent to be dishonest in the [Gupta family] tax matter.”

Irba has accused Wessels of being dishonest and helping the Gupta family to commit tax evasion of more than R2 million while he was responsible for the audit of Linkway as a lead partner at KPMG. The audit watchdog has described Wessels’s audit of Linkway as “grossly negligent”.

Linkway was also allegedly used to divert R30 million earmarked for the infamous Vrede Dairy Farm Project in the Free State to fund the notorious Gupta family wedding in 2013 at Sun City.

Wessels and four other KPMG directors attended the wedding, which called into question KPMG’s independence. Wessels resigned in September 2017 after KPMG decided to take disciplinary action against him.

The matter has reached a sanction hearing stage where Irba’s disciplinary committee has finalised his charges and is deciding on sanctions.

Appeal for leniency

His address to the committee was part of efforts to convince it to be lenient when imposing sanctions that might include being reprimanded, slapped with a maximum fine of R200 000 per charge, or having his right to practice as an auditor suspended permanently.

This arguably a high-profile case for Irba and if sanctions are successfully imposed, it might show that the watchdog is effective at a time when audit firms are facing a credibility crisis.

Wessels asked the committee for leniency as he is facing financial difficulties. “I was paid only a two months’ salary after I left KPMG. I had to sell vehicles and cancel nice-to-haves to pay personal bills. Not one of the big four auditors will hire me.”

He was quizzed by the committee on why he didn’t perform the Linkway audit with professional scepticism that recognises circumstances in which financial statements could be materially misstated. Such a circumstance would be Wessels passing off the Gupta family wedding costs as a business expense.

Evidence

In July 2018, Irba’s audit investigator Janica Boshoff provided evidence showing that Wessels amended Linkway’s financial statements to shift R6.9 million, which was used to pay the accommodation and hotel bill for the wedding. The R6.9 million was allegedly shifted from operating expenses to cost of sales in Linkway’s financial statements to give rise to a tax deduction from the SA Revenue Service.

This was contained in the Gupta email leaks, which unveiled that the family wielded enormous political influence in South Africa.

Wessels said he didn’t take corrective steps such as restating Linkway’s financial statements as the family denied any wrongdoing regarding the diversion of funds to the wedding.

“This [not correcting the audit] was not a significant defence of the Gupta family. It was never a significant client and there was no pressure to retain them as a client … Had we known the things that came out of the Gupta leaks, we would have resigned earlier in 2016 [as the Gupta’s auditors].”

According Wessels, KPMG only considered resigning as Linkway auditors when the Sunday Times reported in 2016 that Ajay Gupta, the family’s patriarch, allegedly offered former deputy finance minister Mcebisi Jonas a R600 million bribe to replace then finance minister Nhlanhla Nene.

The hearing continues on Friday.