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

Jacques Wessels faces sanctions over his audit of Gupta-linked entity Linkway Trading.

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.

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.

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Jacques Wessels, choose your orange prison outfit. Evidence was gathered by a private audit investigator and not our incompetent state machinery; and there is nobody at SARS to let you off the hook.

This is the test to determine whether the IRBA is a worthless cabal of friends with accounting degrees or an organisation of honest and ethical men/women who intend uphold the integrity of the accounting profession. Does Wessels get a slap on the wrist or receive a serious sanction which makes other CA’s sit up and take notice?
Time will tell.

Hmm, so. a) Either he was negligent because the client was a small one, and not important. A client they wouldn’t mind losing in his words. OR b) he was willingly complicit in committing fraud. I understand why IRBA is trying to hang on b). If a) is true then it raises serious questions marks all over the accuracy of audits on small to medium clients right across the industry in SA….

That is a very large assumption to make on a very small sample size of one negligent or fraudulent auditor i.e nonsense.

I think there’s a much bigger sample size available – VBS, Steinhoff……

@Curious60 how is Steinhoff another example of audits of SME entities being sub-par because of their size?

Teamed209 – good point. Google “KPMG incompetence” for a comprehensive and global listing. I was being idle and slapdash – perhaps I’ll become a CA!

I need to understand this correctly: This guy mitigates his decision by stating that he had to provide job security for the KPMG staff. Therefore, all those years of training is subordinated in favour of job security? However, I see something much more sinister in this whole story. Why wasn’t anybody sanctioned when First Strut went under. Jeff Wiggil’s name was just removed from SAICA’s list of registered members within hours of his untimely death. He had a myriad of bank employees, many of them CA’s helping him with 2Bn without there ever being any financial reports, let alone annual financial statements. Furthermore, why focus on this small enterprise? The other enterprises such as JIC, Sahara computers don’t feature anywhere. How did the Gupta’s get so much money out of the country and without sanction? Sorry even if Wessels get an orange overall, there are still too many other questions. Let me know if more examples are required. I have many

Sorry i need to add one more comment: It is becoming very clear that organised crime can only flourish where it receives institutional support. Wessels is again only the fall-guy here and the focus is now clearly on an SME. The problem with this SME is that one of the whistleblowers also got assassinated which in my limited mind makes this a huge matter. We do quite a lot of forensic work and found that SME accountants are much more careful with their clients as these businesses are the sole sources of income for these clients. SME’s in general also lack the financial resources to fight any form of litigation. Accountants in this sector also operate smaller practices and any form of litigation can destroy these businesses. Added to it the fact that the regulating bodies and statutory bodies love to litigate against SME accountants and their clients as they are perceived to be soft targets.

I have to agree Corrie1. This thing goes waaay deeper than one careless accountant.

Irba loves to bully the smaller firms and that is why the smaller firms do better work than the BIG firms. But the problem is goes further – the audit software used!! Everybody uses Caseware so the end result tends to be the same from (small) firm to firm.

Ever endured a practice review? hell on earth for a smaller firm. Partners pend more time on getting the working papers compliant with Irba requirements than anything else. Glad that I am out of it.

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