Wednesday, October 27, 2021

KPMG Botswana in bank’s P200m accounting scandal

Kingdom Bank Africa Limited liquidator, John Little has accused KPMG Botswana of misconduct in signing off the books of the bank which collapsed two years ago and has filed a law suit of close to P200 million against the accounting and auditing firm on behalf of creditors. KBAL was in May 2015 placed under liquidation due to insolvency after an audit assigned by Bank of Botswana (BoB) uncovered an $18.7 million (P200 million) mismatch between assets and liabilities.

The liquidator states that KBAL was already insolvent in 2010, but continued trading until 2014 because over those financial years KPMG falsely reported that the bank was solvent and signed them off as a going concern. It emerges in the court records that in 2011, KBAL’s liabilities exceeded assets by US$ 4, 385, 120.00 (about P49m) a year later in 2012 the bank’s liabilities exceeded its assets by US$ 7, 428 900.00 (about P76m) in 2013 the figure stood at US$ 18, 496.000.00 (about P190 million). At the date of the liquidation the total liabilities of KBAL were US$ 18, 596 000.00 (slightly more than P190 million but the liquidator only recovered P 5 million from the bank’s assets. This means the liabilities exceeded assets by about P85 million.

Already facing a scandal in South Africa – KPMG is under renewed pressure in Botswana with liquidator censuring how the audit firm for years “materially misstated the financial position” of the failed bank ÔÇô in what could turn out to be the biggest accounting scandal in the history of Botswana. Court records in the case before Justice Godfrey Radijeng raises questions on why for a number of years, KPMG Botswana passed off KBAL as a going concern when the bank was actually insolvent. In the court records accessed by Sunday Standard, the liquidator states that “KBAL was at all material times during 20-2013 operating below the internationally accepted standard for minimum capital requirements and was trading under insolvent circumstances.”

John Little points out that KPMG Botswana “acted negligently in breach of its contract by failing to report the true situation to either the management of KBAL or to Bank of Botswana.” Instead KPMG audit reports stated that KBAL was “both solvent and liquid.” KPMG “certified that, in its opinion, the financial statements gave a true and fair view of the financial position of KBAL at financial year end”. It further emerges that KPMG “did not qualify its audit opinion or indicate that the going concern assumption was incorrect.” “In the premises, in conducting the audit for the year ended 31 December 2013 and in conducting the audits for the prior years, KPMG Botswana acted negligently and accordingly breached the terms of its contract with KBAL.

As a result, the annual financial statements materially misstated the financial position of KBAL. The liquidator further states that in its audit reports, KPMG was under a duty to report the true financial situation of KBAL to management. The financial distress of KBAL “constituted a situation which triggered KPMG’s obligation in terms of Section 22(7) of the Banking Act to report this information to Bank of Botswana.” The liquidator further argues that had it not been for KPMG breaches, “the directors alternatively shareholders of KBAL would have been aware of KBAL’s insolvency and illiquidity and would have been obliged to disclose same and take steps to ensure that these problems were urgently resolved, and or this could have been raised at the trilateral meetings arranged in terms of Section 22 (B) of the banking Act and steps taken for these problems to be urgently resolved.”

He further argues that Bank of Botswana would have been obliged to act and would have acted appropriately at the time by among other things revoking KBAL’s licence as a matter of urgency at the time KBAL’s liabilities exceeded its assets, alternatively after the expiry of 90 days in terms of Sections 11 and 12 of the Banking Act, alternatively would have appointed a temporary manager to KBAL or applied for its winding up. The liquidator who is acting on behalf of KBAL’s creditors states that as a result of KPMG’s negligence KBAL suffered damages because had the audit firm “conducted the audit for the year ended 31 December 2010 without negligence, KBAL would have ceased trading on or before the date on which the 2010 annual financial statements were signed. It would have recovered sufficient assets to pay off liabilities.”

At the date of liquidation, the total liabilities of KBAL were about P190 million and the liquidator has only recovered P5 million which means the total liabilities exceeded the assets by about P185 million. The liquidator is represented in the case by Minchin and Kelly while KPMG is represented by Osei ÔÇô Ofei attorney assisted by international law firm Norton Rose Fulbright. Norton Rose Fulbright has also been engaged by KPMG to conduct a review of work done by the Auditing and accounting firm for the Guptas in the South African scandal.

In a statement last week, Dixon-Warren told the media that it was business as usual at the Botswana office, where the company is involved in high profile works such as the liquidation process of BCL Mine as well as KFC Botswana. He said the auditing and accounting firm was not affect by events in Africa where KPMG’s South African branch has come under fire after becoming caught up in a growing corruption scandal surrounding one of the country’s most influential families, the Guptas.

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