Former KPMG partner ‘not dishonest’ in auditing Gupta entities

Although former KPMG employee Jacques Wessels has admitted that his audit of non-listed Gupta family entities was “inadequate” and “fell short” of required auditing standards, he has taken umbrage at accusations of being dishonest.

Wessels is facing six charges of improper conduct from audit watchdog the Independent Regulatory Board of Auditors (Irba) relating to his audit of Gupta-owned Linkway Trading for the year ended February 28, 2014.

The Irba charges – which might result in KPMG being reprimanded, slapped with a maximum fine of R200 000 per charge, having its right to practice suspended or being removed from the watchdog’s registrar – range from improper conduct and the flouting of auditing policies to fraud and money laundering.

Irba has accused Wessels of being dishonest and helping the controversial Gupta family to commit tax evasion while responsible for auditing Linkway as a lead partner at KPMG.

Acting for Wessels, advocate Azhar Bham said there “ought to have been a degree of scepticism and inquiries” in Wessels’s audit of Linkway. Bham said Wessels didn’t have any dishonest intention to dodge tax.

“Dishonest conduct must be demonstrated by facts that are proven. From the Irba evidence, it seeks to take a jump from a failure to have demonstrated a great degree of scepticism to being dishonest,” said Bham.

“Saying he [Wessels] was dishonest is a stretch too far. To label someone as dishonest without evidence is serious. You could destroy lives in the process.”

Bham was making oral arguments on Sunday at the Irba disciplinary inquiry of KPMG, which is chaired by advocate Alan Dodson. The inquiry comes at a time when KPMG is fighting for survival after several major scandals – including missing red flags in its audits of VBS Mutual Bank as well as the Gupta-owned companies, and withdrawing parts of its report on the so-called “rogue unit” of the South African Revenue Service (Sars).

Meanwhile, for Irba, it has to prove that it has bite behind its bark as an audit regulator.

Gupta Sun City wedding

The audit watchdog has described Wessels’s audit of Linkway as “grossly negligent”. According to Irba, Wessels allegedly helped Linkway to avoid paying Sars more than R2 million in taxes.

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. More than four senior executives resigned following the Gupta auditing scandal.

Irba’s audit investigator Janica Boshoff provided evidence to the inquiry in July 2018, accusing Wessels of amending the Linkway financial statements to shift R6.9 million, which was used t0 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 Sars.

This was after Rone Alex, a member of KPMG’s tax department, highlighted the risk of Sars not allowing a tax deduction as the hotel and accommodation bill was not incurred in the production of income. The R6.9 million was a personal and not business expense, which should have been categorised as a loss to Linkway, but Wessels proceeded to sign-off on the financial statements.

Bham said Wessels has admitted to this error, saying that he should have picked it up earlier and corrected it.

After the R6.9 million was moved, there was an understatement of tax payable as Linkway only paid about R55 000 to Sars when it should have paid R2.1 million, said Boshoff. She added that moving the R6.9 million to cost of sales with a view of treating it as tax deductible was “dishonest.”

Irba’s charge sheet of Wessels reads: “the information submitted to Sars was intentionally misrepresented, which resulted in Linkway’s tax being reduced on an unjustified basis.”

Dishonesty

Bham said Wessels cannot be accused of dishonesty as he wrote a letter to Ronica Ragavan, the CFO of Linkway, dated September 25, informing her of the concern raised by KPMG’s Alex. In the letter, Wessels asks Ragavan about recovering the R6.9 million from the father of the bride, who had her wedding at Sun City.

“We can’t draw the inference that Wessels attempted, together with [his] clients [Linkway], to assist them to secure a tax benefit one way or the other,” said Bham. “If that was his intention, he would have immediately responded to Ronica with his own remedy to evade tax. But Wessels instead communicated his concerns.”

In his judgment, which is expected within 30 days, advocate Dodson will consider whether the evidence submitted is sufficient to deem Wessels’s conduct as dishonest.

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