The two KPMG partners responsible for auditing VBS Mutual Bank had not disclosed the full extent of their financial interests in relation to the embattled bank, which was placed under curatorship last month.

Nhlamu Dlomu, KPMG’s chief executive, confirmed at a press briefing on Sunday, that lead auditor responsible for signing off on the bank’s financials, Sipho Malaba held loans with the bank but had not declared their full extent.

During the course of an on-going internal investigation, similar concerns had also emerged regarding fellow partner Dumi Tshuma.

Both partners resigned on Friday just ahead of disciplinary charges being laid against them. An internal investigation into the VBS matter, which is being conducted by external law firm Bowman’s will continue.

“We were concerned about the non-disclosure about some of those loans within our systems,” said Dlomu. The auditing firm did however not have the full information on the terms of the loans, she said.

The South African Reserve Bank placed the troubled VBS under curatorship after a major liquidity crisis on March 11. It has since emerged, however, that the problems at the bank may be far worse than first believed. Court documents from the Reserve Bank revealed that as much as R900-million could not be accounted for.

According to court papers, the bank is exposed to about R1.5-billion in municipal deposits. It holds about R370-million in funds intended for the beneficiaries of deceased mineworkers. The Public Investment Corporation has invested about R368-million in VBS through equity and debt.

The bank’s last three set of financials were signed off by Malaba.

KPMG also audits the books of Nedbank, Standard Bank, Absa and Investec.

The revelations are another blow to KPMG, which has been battling to restore its credibility after its role in allegedly assisting companies linked to the Gupta family, in what appeared to be a money-laundering scheme.

The firm’s reputation was also tarnished by a report done for the South African Revenue Service, into claims of a so-called rogue unit, but which has since been largely discredited.

Dlomu called the recent events “extremely disappointing” given the work KPMG has been conducting to rehabilitate its image.

On Friday, the Reserve Bank announced that it was launching a forensic probe into VBS after the curator Anoosh Rooplal recommended that an independent review of the business be undertaken. Rooplal was appointed to try and restore the bank in a bid to protect its depositors.

Registrar of banks, and chief executive of the prudential authority at the Reserve Bank, Kuben Naidoo, appointed advocate Terry Motau as an investigator under section 134 of the Financial Sector Regulation Act, to investigate VBS.

Motau is tasked with finding out whether any of the business of VBS was conducted with the intent to defraud depositors or other creditors, or for any other fraudulent purpose; if VBS’s business conduct involved questionable or reckless business practices or material non-disclosure, with or without the intent to defraud depositors and other creditors; and whether there had been any irregular conduct by VBS’s shareholders, directors, executive management, staff, stakeholders or related parties.

The Independent Regulatory Board for Auditors (IRBA) also announced on Friday that it had launched its own investigation into KPMG’s lead auditor of VBS’s books.

“The IRBA investigates the professional conduct of registered auditors when there is prima facie evidence that an external audit may not have been conducted in accordance with international auditing standards,” the regulator said in a statement.

The IRBA also revealed that KPMG had only filed a reportable irregularity with it on April 11. This was despite the bank being placed under curatorship in early March and meeting with Rooplal on March 27 to discuss problems at the bank.

Under the auditing profession Act, a reportable irregularity is an unlawful act or omission by the management of an entity that has, or is likely to cause material financial loss to the company or its shareholders, creditors or investors; is fraudulent or amounts to theft, or represents a breach of fiduciary duty.

Under the act, an auditing firm must report irregularities of this nature to IRBA.

“We don’t have the final answer as to why it wasn’t done earlier, but in the process of reviewing the work it was decided to act on that,” Dlomu said when asked why it had not reported to IRBA sooner.

Speaking alongside KPMG South Africa chairman Wiseman Nkhulu, Dlomu outlined the steps it was taking to recover from the VBS and other scandals.

These include expanded integrity and background checks of all partners and their spouses or partners.

It has also launched a programme of extensive quality file reviews, which will run over the next several weeks, and will cover all audit partners. According to Nkhulu this will entails re-examining the audits of between 100 to 200 companies done within the last eighteen months.

The firm is also planning to appoint additional non-executives to its Board to ensure greater independence and better governance.