KPMG chief supports jail for corrupt auditors

• Throw away the key, but don’t destroy profession, says Sehoole

Ignatius Sehoole, the CEO of KPMG’s SA unit, has called for harsher punishment for auditors who knowingly sign off incorrect audit reports, saying they should go to jail and authorities must “throw away the key”.

Sehoole, who took over the reins at KPMG in 2019 when corporate SA was turning its back on the firm for its role in decimating the SA Revenue Service (Sars), said he had no sympathy for people involved in corruption and fraud, and who intentionally misled investors, the public and regulators.

“Those people, for me, we’re not talking fines. In my view, those people need to go to jail and throw away the key, because you must look at the damage they’ve done,” he said in an interview with Business Day Spotlight, a podcast that discusses the latest news and trends in business, finance and economics in SA and beyond.

Sehoole was referring to the scandals and controversies that rocked the auditing profession in the past few years involving KPMG, Deloitte and PwC as well as their clients the Gupta family, Sars, VBS Mutual Bank, Steinhoff and Tongaat.

The cases eroded trust and confidence in the auditing industry and increased expectations and demands from the regulators, investors and other stakeholders for more transparency, accountability and assurance.

In reaction, the Independent Regulatory Board for Auditors (Irba) fought and won the battle to be given more powers to shake off the shackles of being regarded as a timid watchdog that watches meekly as audit failures eat away at the profession’s integrity.

Irba can now slap errant auditors and their employers with fines ranging from thousands to millions of rand, depending on whether they admit guilt or are found guilty in a disciplinary hearing.

The previous penalties were capped at R200,000 per misconduct charge.

Still, the regulator had gone too far in stepping up its oversight and enforcement, Sehoole said. The penalties, which range to a maximum of R5m-R10m for an individual auditor, were unfair to auditors, especially inexperienced and junior auditors who might make genuine technical mistakes and who would be scared and discouraged from entering the profession, he said.

“The penalty for wrongdoing should be severe, but without destroying the profession. And that’s the key thing,” he said.

“Now, can you imagine, which is most likely, a first-year or second-year inexperienced partner who is still learning, who makes a technical error, and you go down heavily on them?

“That’s not helping the profession. It’s not really helping, because people are going to be scared and go for cover.”

Sehoole, a passionate farmer and former head of the SA Institute of Chartered Accountants, said the profession already faced a skills gap and talent shortage,

with youngsters seeing the profession as one of high risk and low reward.

Cheerleaders of the new fines see them as necessary to deter misconduct and reflect the gravity of the harm caused by auditing misconduct, which can result in massive financial losses for millions of investors, workers and creditors and reputational damage, as well as potentially destabilising the financial system.

Sehoole said law enforcement agencies such as the Hawks, National Prosecuting Authority and the SA Police Service had not been effective enough in bringing culprits to justice. He cited the example of Philip Truter, former CFO of VBS, as the only person who went to jail after striking a deal with the prosecution, while others had yet to be prosecuted.

“We’re still waiting; we’re still waiting; we’re still waiting.”

In 2020, Truter was sentenced to an effective seven years in prison for his role in the looting of VBS.

“Justice delayed is justice denied. Look at all these fraud cases. Even in the cases you’re mentioning, with VBS, Steinhoff, Transnet and SAA, who is going to jail? No-one,” said Sehoole.

“I wish we had a system that actually showed no mercy whatsoever for people like that. I don’t think we’re there yet.

“For me, those guys should be shown no mercy. But you shouldn’t show the same aggression to people who make genuine technical mistakes.”