Sipho Malaba, the lead auditor of the defunct VBS Mutual Bank and a former employee of KPMG, will learn his fate on Wednesday when the auditing watchdog will push to have him barred for life from practising as an auditor.
Malaba, who at the time of his dismissal by KPMG was earning R5m a year, or R416,000 a month, refused to participate in the disciplinary hearing held by the Independent Regulatory Board for Auditors (IRBA) — which culminated in him being found guilty on several charges. The IRBA described him as a “hazard” to the profession.
The charges went beyond his auditing of VBS, a company he benefited from to the tune of more than R25m in underhand loans, all the while turning a blind eye to glaring graft that cost the defunct lender more than R2bn in losses.
Malaba was also taken to task over his “ghost auditing” of a medical scheme, Spectramed, and the Industrial Development Corporation (IDC), where he showed total disregard of his role — thus painting a picture of systematic failings on his part.
However, it was his role in the collapse of VBS, after he signed off the unmodified audit report in the 2017 financial year in the face of serious evidence of corruption, that has drawn the sharpest rebuke from the IRBA.
Advocate Terry Motau, who investigated the looting of the bank, on Friday argued before the disciplinary panel on behalf of the IRBA that Malaba had shown no remorse and has no business being in the auditing profession.
For a credible audit profession, the independence of auditors must be regarded as sacrosanct. Independence is therefore a lifeblood of a proper and functioning auditing profession
— Advocate Terry Motau
Saying Malaba’s misconduct was devastating and far-reaching, Motau pointed to the fact that the bank collapsed less than a year after Malaba signed the audit report.
“The fraudulent scheme of which Mr Malaba was found to have been a participant resulted in the looting of VBS on a massive scale,” Motau said, arguing for Malaba’s disqualification at the sanction hearing.
“It is, therefore, axiomatic that the independence of an auditor within the purview of conducting an audit of a client is sacred and that the independence of the auditor must be jealously guarded. Without it, the repeat of a dramatic collapse of organisations such as VBS Mutual Bank will be a frequent occurrence in future.
“Members of the public must have confidence in the independent auditor’s report, including all other interested stakeholders, and equally important, the shareholders and investors.
“For a credible audit profession, the independence of auditors must be regarded as sacrosanct. Independence is therefore a lifeblood of a proper and functioning auditing profession.”
Malaba was again absent at the sanction hearing, with the verdict on his future set for Wednesday. The panel has already found that his unmodified auditor’s opinion was the seal that gave VBS’s fraudulent financial statements the veneer of legitimacy.
Motau said that without it, the fraud could not have been sustained and Malaba’s clean audit opinion enabled VBS to continue operating, accepting deposits and defrauding its stakeholders.
Motau’s 148-page report — “VBS Mutual Bank: The Great Bank Heist”, released in October 2018 — blew the lid off the looting that characterised the bank, from which about R2bn was syphoned in less than five years.
KPMG in 2024 agreed to pay VBS R500m to settle a lawsuit launched by the bank’s liquidators.
The liquidators initially demanded nearly R900m from KPMG over the shoddy work done in auditing the bank’s books.
The findings of the IRBA panel showed Malaba had abused his position as a senior staffer at KPMG to issue a fraudulent letter to the Land Bank, a third party to whom VBS Mutual Bank had applied for a R100m credit facility
Malaba’s failures in the auditing of VBS were not isolated to a single area of the audit but were pervasive. They included the signing of cash and cash equivalents amounting to R746.8m, which were not supported by any audit evidence, among several other shortcomings.
Other glaring red flags Malaba turned a blind eye to included the 56% year-on-year growth in VBS’s loan book, which was not identified as a significant risk, as well as the extraordinarily low impairments of just 0.6% on a R1bn loan book — an unheard-of loan recollection success rate in the banking sector.
The findings of the IRBA panel showed Malaba had abused his position as a senior staffer at KPMG to issue a fraudulent letter to the Land Bank, a third party to whom VBS Mutual Bank had applied for a R100m credit facility.
Fortunately for the Land Bank, the R100m facility was rejected. In the Spectramed and IDC audits, a pattern of dereliction was proved.
The panel found that Malaba conducted ghost auditing. This entailed signing audit opinions on engagements in which he was absent from planning, absent from risk assessment, absent from execution, and absent from any meaningful supervision.
“He reviewed critical working papers on a single day, months after they had been prepared, in what the expert described as a perfunctory tick-box exercise,” Motau said.
The IRBA is also seeking financial penalties amounting to R1.6m against Malaba, or R200,000 for each of the eight charges he was found guilty of.
VBS’s disgraced erstwhile CFO Philip Truter became the first person to be convicted in the VBS scandal in 2020 when he pleaded guilty to fraud, corruption, money laundering and racketeering charges.
Tshifhiwa Matodzi, the former chair of VBS and the so-called kingpin behind the bank’s massive looting, also pleaded guilty in 2024 to multiple charges, including fraud, corruption, money laundering and racketeering. He will serve 15 years in prison.
Malaba and other co-conspirators are facing criminal charges over what has become of South Africa’s biggest corporate graft cases.
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