KPMG continues to clean up its mess in S Africa
KPMG SA’S newly appointed management yesterday admitted that it was fighting for its very survival amid moves by the government and private companies to review relationships with the embattled audit firm.
The company also said it had opted to pay golden handshakes to executives and partners in a bid to clean up its image and to avoid a lengthy court battle. KPMG SA interim chairperson of the auditor’s policy board, Gary Pickering, said some of the executives who were implicated in the Gupta-owned Linkway Trading saga had unashamedly walked away from their roles.
“Severance packages were paid to certain of the nine partners who left the firm and that was in the interest of speed and to enable us to move on and exit the partners concerned and allow the new leadership team to take office,” Pickering said.
In another blow to its reputation, yesterday JSE-listed group Interwaste Holdings announced that it was cutting ties with KPMG as its external auditors and replaced it with rivals Deloitte.
Interwaste said its decision was informed by “the concerns recently raised regarding KPMG”. Interwaste joins Sygnia Asset Management, Wits University and Sasfin, among others, in cutting ties with the firm.
KPMG SA chief executive Nhlamu Dlomu would, however, not be drawn to disclose figures paid to some of the senior officials who left the firm.
Last month the auditing firm’s top SA leadership, including chief executive Trevor Hoole, chief operating officer Steven Louw, chairperson Ahmed Jaffer and five senior executives resigned as the fallout over the ill-fated SA Revenue Services report and the alleged close relations with the infamous Gupta family raged on.
South Africa’s auditor-general Kimi Makwetu described the saga engulfing the firm as déjà vu – drawing comparisons to the 2001 Nel report that lambasted the role played by auditors in the collapse of Masterbond Group. Makwetu said that after reading KPMG International report into the conduct of its South African arms in relations to the Sars “rogue unit” report and auditing of Gupta owned Linkway, he felt “we have been here before”.
Serious deficiencies
“In the introductory part of the Nel report, which I will quote directly, it says: “The investigation into the Masterbond Group and its associated companies revealed serious deficiencies in the South African supervisory system and in those sections in the companies act which were designed to protect investors.”
“It also revealed an astonishing degree of dishonesty, inefficiency, lack of professional integrity and lack of independence on the part of some of the auditors involved with these companies,” Makwetu read from the report.
Masterbond was established in 1984 and its directors pretended that it was registered by the Reserve Bank, which led to investment consultants and the media recommending the group’s projects as sound propositions for investments.
However, the company was later found to have run a ponzi scheme. Liquidators of Masterbond estimated at the time of the trial that more than 22 000 investors with total investments of R600 million provided the capital base for the group.
The Attorney-General said that his department had gotten KPMG’s leadership assurances that the firm’s independence and professional competence were intact and his office has therefore decided until such time of the outcome of investigations it would rather allocate less work to KPMG instead of pulling the plug completely.
David Ross, the DA’s member of the Parliament’s Standing Committee on Public Accounts said KPMG’s shortcomings presented a significant risk to the state and called for a review of all the contracts that government departments have entered into with KPMG including all the contracts that the firm has tendered for.