The Institute of Accountants in Malawi (Icam) says it has cleared KPMG Malawi in the defunct Malawi Savings Bank (MSB) K1.2 billion ‘fictitious assets’ rot because it displayed reasonable procedure as required by audit standards.
Icam’s immediate past president Henry Chowawa said in an interview last week the accountants’ professional body came up with the decision after the complaint on the matter passed through all the three committees that handle such cases.
His clarification followed concerns from some sections of the profession on how Icam cleared KPMG yet it was the reporting auditor in the transaction at the then wholly State-owned bank.
He said the issue passed through the investigations and ethics committee, disciplinary committee and finally the Icam council which had the final say on the findings of the three committees.
Said Chowawa: “I cannot disclose every discussion we had because some of them were confidential, but the bottom line is that KPMG in the matter that was presented to us demonstrated that they had done reasonable procedure in as far as audit standards are required.”
He said the audit firm would have been faulted if it did not do enough to deal with the matters at hand.
Earlier this month, Icam cleared KPMG and its engaging partner of a charge that they failed to recognise the existence of impaired assets in the Statement of Financial Position of MSB of the sum of K1 249 448 981.03 during the audit of the financial institution for the years 2011, 2012 and 2013.
Icam then acted on the issue alongside other disciplinary matters and fined MSB former head of finance James Salaka K800 000 after he was found “guilty of negligence by recognising the fictitious assets” during the bank’s sell in 2015.
In November 2016, The Nation reported that Salaka and some of his fellow MSB managers then concealed the K1.2 billion loss and further understated Mulli Brothers Limited (MBL) Holdings Group loan balance by at least K3.5 billion.
The alleged double misinformation on the bank’s financial position is believed to have propped-up MSB’s balance sheet and profitability levels and left its eventual buyer, FDH Financial Holdings Limited, feeling short-changed.
According to a forensic audit report by FDH Internal Audit Department dated October 2015, the K1.2 billion loss was only written off in MSB’s financial statements for the year ended December 31 2014, yet it originated in 2012.
The non-provision for the loss, according to the report, was first reported by MSB’s Internal Audit Department in an October 2013 report to its management, but action was only taken around April 2015, when the bank’s board was made aware during its extra-ordinary meeting after external auditors, KPMG, insisted they would not sign the financial statement for the year ended December 31 2014 if the K1.2 billion was not written off.
When FDH forensic auditors contacted the then MSB chief executive officer Ian Bonongwe, Salaka and finance manager Million Hera, they all confirmed that the loss was not written off or provided for. This forced MSB to terminate their contracts for their alleged roles on the issue.
Later, FDH reported KPMG to Icam for “failing to recognise fictitious assets” in MSB Treasury, having certified the accounts that listed the K1.2 billion loss as “other assets” instead of recognising it as loss. n