Reference no: EM133070482

Accounting body strips former VBS board chair of membership  Feb 20 2019 19:53  Sibongile Khumalo

VBS Mutual Bank  The South African Institute of Chartered Accountants has announced that its disciplinary committee has ordered that former chairperson of the VBS board, Tshifhiwa Matodzi, be stripped of his registration. The decision means that Matodzi won't be recognised as a chartered accountant.  SAICA said in a statement on Wednesday afternoon that the decision to cancel Matodzi's membership was taken at a meeting on February 19. "The Disciplinary Committee has ordered the cancellation of Mr Matodzi's membership from SAICA", the institute said. Matodzi's name was prominently mentioned in a damning report, commissioned by the SA Reserve Bank, into what transpired at the mutual bank.  The 'Great Bank Heist' report, released last year, detailed how executives at the bank misappropriated funds, contributing to its downfall. Almost R2bn was looted from the bank, according to the report, with officials using the money of depositors to splurge on personal luxuries. A number of municipalities made large deposits into the bank, which was contrary to regulations prohibiting the investment of public funds in mutual banks.

Saica said the sequestration hearing of the bank's former CEO, Andile Ramavhunga, will resume in April. VBS was placed under curatorship by the Reserve Bank in March. Several officials, including President Cyril Ramaphosa, have said that the monies stolen from the bank's depositors, mainly pensioners, must be recovered.

During investigations into the VBS Mutual Bank Scandal, it was discovered that the auditing firm KPMG, responsible for the external audit of VBS, helped to cover up the crime. KMPG's senior partner on the audit, Sipho Malaba, received more than R34 million in gratuitous payments from VBS. These payments were not disclosed to KPMG. Sipho Malaba also hold loans with the bank but had not declared their full extent. Similar concerns emerged regarding his fellow partner at KPMG, Dumi Tsuma. When confronted, both partners resigned. Sipho Malaba signed of the last three sets of the annual financial statements of VBS Mutual Bank.

The Independent Regulatory Board of Auditors (IRBA) launched its own investigations into the allegations. Among other things, the are looking into the matter of a Reportable Irregularity that was only filed by VBS on 11 April, despite the fact that the bank has been placed under curatorship in early March.

KPMG announced that it will undertake extensive quality file reviews as well as a re-examination of over 200 audit files. They are also planning on appointing additional non-executive directors to its board to ensure greater independence and better governance. 

YOU ARE REQUIRED TO:

1) Discuss whether KPMG, in their capacity as auditors of VBS Mutual Bank acted in accordance with Part 4 of the SAICA Code of Professional Conduct.

2) Discuss the actions that KPMG should undertake to prevent further scandals from tainting their reputation.

3) Explain whether KPMG was in contravention of the IRBA Rules Regarding Improper Conduct applicable to RAs and/or SAICA Punishable Offences, and if so, identify which ones were breached.

4) Discuss whether a disciplinary process should be instigated against Sipho Malaba and Dumi Tsuma, and what such a disciplinary process will entail.

5) Evaluate the significance of the Reportable Irregularity filed with IRBA on 11 April.