KPMG woes spill into Namibia

The international accounting firm, KPMG's alleged questionable conduct in Namibia appears to be adding to the scandal-hit firm's troubles in South Africa.

While the international focus has been KPMG South Africa and the firm's alleged unethical behaviour in South Africa, The Southern Times has learned that the Namibian chapter has also been embroiled in controversy with Namibia's power utility, NamPower. As a result, NamPower fired KPMG as its auditors in 2016, on ethical grounds.

This is despite KPMG Namibia senior partner, Robert Grant, being quoted in the media, last September, assuring that the situation in South Africa did not impact the Namibian division and that it was still committed to serving the public and its clients in the country.

KPMG Namibia spokesperson, Nqubeko Sibiya, denied that KPMG Namibia was fired as NamPower's auditors. According to Sibiya, the firm was replaced as external auditors following an external proposal process initiated by the utility, in terms of governance principles applied by State-Owned Enterprises (SOEs) in Namibia. The Namibian fiasco also implicates the South African chapter of KPMG, which is currently the subject of an industry inquiry by the South African Institute of Chartered Accountants (SAICA).

The SAICA inquiry is investigating whether KPMG accountants broke the code of professional conduct during work done for the companies linked to the controversial Gupta family and the South African Revenue Service. The inquiry is expected to conclude this month after being convened February this year.

KPMG stands accused of allegedly helping the Gupta family dodge tax and syphon money from South Africa's SOEs. The Big Four firm allegedly played a leading role in the Jacob Zuma-Gupta state capture strategy by falsifying reports that enabled the Gupta family to also cheat the South African Revenue Service (SARS) out of millions.

Before KPMG South Africa was hit by the Gupta scandal, its Namibia sibling found itself without a major client, NamPower. The Southern Times has learned that the Namibian power utility fired the auditing firm, in 2016, after its board found it could no longer trust the audit firm's ethics. Both NamPower and KPMG have denied this sequence of events.

It all started in 2015 with a media headline reporting that NamPower paid KPMG R36 million for a job worth R2.4 million. The two allegedly had a fixed-term contract for R2.4 million but the fee later escalated. KPMG was allegedly doing 'advisory and commercial services' to help do the tender adjudication work for NamPower's controversial 250MW power tender.

As a result, the NamPower board of directors suspended three executives at the utility, including former Managing Director Paulinus Shilamba. It also later emerged that the 250MW power tender process, which KPMG was running on behalf of NamPower, was mired in controversy. As a result of the tender award, in which KPMG played a role, was this year reversed by the Supreme Court of Namibia.

NamPower sources told The Southern Times that its board of directors started questioning KPMG's ethics and the accounting firm's involvement in the controversial tender, which ended up ballooning. KPMG Namibia allegedly claimed to have acted professionally and that the consulting services were done by KPMG South Africa. Unsatisfied, the NamPower board terminated its relationship with the accounting firm.

The Southern Times established that KPMG had been the external auditors for NamPower at least between 2010 and 2016. During that period, KPMG had been signing off on the power utility's financial statements. The utility's financial statements also show that NamPower had been paying between R1.3 million in audit fees in 2009 and R2 million in audit fees by 2016 when it fired KPMG as long-time auditors.

NamPower Managing Director, Samson Haulofu, insisted that there was nothing untoward about NamPower changing auditors. He said it was a process conducted every three years and that everything was done above board. He did, however, not explain why KPMG's tenure as auditors ran for longer than three years.

NamPower is now audited by Deloitte and Touche in partnership with Grant Namibia.

Independent Chartered Accountants and Auditors explained to The Southern Times that what KPMG did at NamPower amounted to the firm conducting both internal and external audit functions for the parastatal. The practice is prohibited in the auditing profession.

The experts further said that generally there is small room for external auditing firms to conduct consultancy work for a company provided that the partner and team responsible for the external auditing work is completely independent of the team doing the consulting work.

However, this practice has been discouraged, especially when it comes to large public or listed companies.

This is because the independence of an auditor is breached and concerns are raised whether such an auditor would raise the flag on potential malfeasances, as a result of the consulting work done by their partners, because this has the potential to affect their revenue pool which the whole firm shares.

Namibia's Public Accountants and Auditors' Board (PAAB) said it is aware of the case, as reported in the local media during 2015, but did not act on it because no formal complaint was lodged.

PAAB's Head of Secretariat, Zaa Nashandi, said the current Act does not give powers to the board to launch investigations against a member or firm without receiving a formal complaint from an aggrieved member of the public or an organisation.

This principle, mero-motu, is only considered under the current draft Bill, he said.

Sibiya said the R36 million was shared by a consortium made up of six organisations that KPMG was a part of. He did not explain how the amount was inflated from R2.4 million to R36 million.

Asked why KPMG tendered to be the adjudicator for the 250MW project if the company was already NamPower's auditors and whether that did not amount to a conflict of interest.

Sibiya said, We did assess our independence for this project and concluded that there was no conflict of interest.

The International Federations of Accountant's (IFAC) Code of Ethics for Professional Accountants (2013 Edition), adopted by the PAAB in 2012, cautions public accountants to be wary of self-review threats when accepting non-assurance work from an audit client.

According to Sibiya, NamPower also undertook an internal audit investigation and an independent forensic investigation relating to the 250MW project, and both processes did not find any wrongdoing by KPMG.

KPMG's alleged ethical transgressions are not only unique to South Africa and Namibia. The international firm has also been at the centre of major scandals in the United Kingdom, Italy and the USA. KPMG was also the auditors of FIFA, at the time the international football body was rocked by a major scandal involving more than US$150 million on the alleged use of bribery, fraud and money laundering.

KPMG, which audited the football body for 16 years until 2015, gave FIFA a clean bill of health during that period. KPMG resigned as FIFA auditors after news of the scandal broke. � This article was first published by The Southern Times on June 1, 2018.

Source: New Era Newspaper Namibia