BLOOD­BATH AT KPMG

Au­dit­ing firm says there was no po­lit­i­cal mo­ti­va­tion be­hind its Sars rogue unit re­port

CityPress - - Business & Tenders - LESETJA MALOPE, DEWALD VAN RENS­BURG and VUKILE DLWATI business@city­press.co.za

The con­tin­u­ing purge of direc­tors at au­dit firm KPMG, and its prom­ise to re­turn or do­nate fees it earned on “sub-stan­dard” work for the Gup­tas and the SA Rev­enue Ser­vice (Sars) won’t make up for the dam­age it wrought, says one of the com­pany’s most con­sis­tent crit­ics. “It is a cop out,” said Iraj Abe­dian, CEO of Pan-African In­vest­ment and Re­search Ser­vices.

This came af­ter KPMG on Friday re­leased a lengthy state­ment on its role in au­dit­ing Gupta-owned com­pa­nies and pro­vid­ing the am­mu­ni­tion that was sub­se­quently used to hound for­mer fi­nance min­is­ter Pravin Gord­han out of Cab­i­net.

Abe­dian said KPMG should pay for the dam­age it caused, and not just re­pay the fees it charged while do­ing it.

“This in­cludes dam­age to the econ­omy, as the re­port con­trib­uted to credit rat­ings agen­cies’ down­grad­ing of the coun­try’s sov­er­eign credit rat­ing.”

He was re­fer­ring to the firm’s re­port about the so­called rogue unit in Sars.

“There must be an in­de­pen­dent pool of econ­o­mists. You must not over­com­pli­cate it. It is not im­pos­si­ble. You have to quan­tify the dam­age done to Brand SA, to eco­nomic growth. You can’t just say, ‘here’s the

R40 mil­lion back’. That is nom­i­nal. It must be a far larger num­ber.”

He pointed out that the de­par­tures of direc­tors did not amount to proper ac­count­abil­ity: “Direc­tors must lose their cer­ti­fi­ca­tions. Some must go to jail.”

The list of de­parted or de­part­ing KPMG ex­ec­u­tives now in­cludes CEO Trevor Hoole and chair­per­son Ahmed Jaf­fer.

Chief op­er­at­ing of­fi­cer Steven Louw is also gone. Jac­ques Wes­sels, the lead part­ner work­ing on au­dits of un­listed Gupta com­pa­nies, will face dis­ci­plinary ac­tion. KPMG wants to dis­miss him.

Wes­sels was al­legedly re­spon­si­ble for sign­ing off on the use of govern­ment fund­ing to a Free State dairy project to fund the in­fa­mous Gupta wed­ding at Sun City in 2013.

Mike Oddy (head of au­dit and a board mem­ber), Muham­mad Saloo­jee (head of tax and a board mem­ber), Her­man de Beer (for­mer head of foren­sic and a board mem­ber), John Geel (head of deal ad­vi­sory) and Mickey Bove (risk man­age­ment part­ner for deal ad­vi­sory) are all out, said KPMG.

Im­por­tantly, through­out the long mea culpa, the firm re­peat­edly as­serts it sim­ply did not live up to its own stan­dards – as op­posed to break­ing any laws.

“They do not have to ad­mit it. We have vast amounts of ev­i­dence,” said Abe­dian.

It was up to South Africans to take it fur­ther, he said. “If our govern­ment was on the ball, it would in­sti­gate it. So­cial group­ings will have to do it. In­ter­na­tional laws must be used to pros­e­cute the au­dit firm for fa­cil­i­tat­ing cor­rup­tion,” Abe­dian said.

With KPMG now far be­yond deny­ing its com­plic­ity in the sus­pect ac­tiv­i­ties of the Gupta fam­ily’s firms and the po­lit­i­cal machi­na­tions in govern­ment, other tar­gets for sim­i­lar scru­tiny are read­ily at hand, he said.

The most ob­vi­ous tar­gets are man­age­ment con­sult­ing firm McKin­sey and global soft­ware com­pany SAP.

“We have not even started on the banks, which, for years, trans­ferred cash im­prop­erly. It is a very com­plex ar­chi­tec­ture.”

KPMG has not ac­tu­ally ad­mit­ted to cor­rup­tion. Abe­dian notes that its state­ments have been care­fully crafted to avoid pre­cisely that.

The com­pany “did not iden­tify any ev­i­dence of il­le­gal be­hav­iour or cor­rup­tion by KPMG part­ners or staff”, but found the stan­dard of work con­sid­er­ably low.

“Based on the re­sults of this in­ves­ti­ga­tion, sig­nif­i­cant ac­tions have been taken and are be­ing an­nounced to­day [Friday] with re­spect to KPMG SA.”

These in­cluded lead­er­ship changes, changes to gov­er­nance and im­proved qual­ity con­trol pro­ce­dures in cer­tain areas.

The ma­jor apol­ogy was to Gord­han.

KPMG was re­spon­si­ble for the re­port about the rogue unit in Sars, which Sars had com­mis­sioned. It sug­gested that Gord­han knew about an un­law­ful unit, which be­came the ba­sis of cam­paigns against him.

“This was not the in­tended in­ter­pre­ta­tion of the re­port. To be clear, the ev­i­dence in the doc­u­men­ta­tion pro­vided to KPMG SA does not sup­port the in­ter­pre­ta­tion that Mr Gord­han knew, or ought to have known, of the ‘rogue’ na­ture of this unit. We recog­nise and re­gret the im­pact this has had. KPMG SA had no po­lit­i­cal mo­ti­va­tion or in­tent to mislead.”

The firm of­fered to re­fund Sars the R23 mil­lion it got paid for the re­port.

Sep­a­rately, KPMG said it would do­nate R40 mil­lion to ed­u­ca­tion and non­profit or­gan­i­sa­tions that cam­paign against cor­rup­tion.

“The R40 mil­lion fig­ure is based on the to­tal fees earned from Gupta-re­lated en­ti­ties to which KPMG SA pro­vided ser­vices from 2002,” the state­ment reads.

This is pre­cisely the rem­edy that had been pro­posed by Magda Wierzy­cka, CEO of as­set man­ager Syg­nia. She was the first ma­jor fig­ure in cor­po­rate South Africa to ditch KPMG be­cause it did work for the Gup­tas.

De­spite com­mit­ting to part with R63 mil­lion, the firm says it found no ev­i­dence of dis­hon­esty or un­eth­i­cal be­hav­iour among its au­dit part­ners and the team that worked on the Gup­tas’ group of com­pa­nies.

The spurn­ing of KPMG is ev­i­dently pick­ing up pace. It was re­ported on Friday that Bar­clays Africa is re­view­ing its use of KPMG.

The In­de­pen­dent Reg­u­la­tory Board for Au­di­tors an­nounced in June that it was in­ves­ti­gat­ing KMPG’s au­dit of the Gup­tas’ Linkway Trad­ing in 2014. This was the sub­sidiary that moved money to fund the wed­ding. Their own re­port on the mat­ter is still out­stand­ing.

Lor­raine van Schalkwyk, spokesper­son for the board, said on Friday that the or­gan­i­sa­tion would re­view KPMG’s new an­nounce­ment.

It was “very dif­fi­cult” to say how long the in­ves­ti­ga­tion will take.

It could ul­ti­mately re­sult in KPMG au­di­tors los­ing their right to prac­tise.

Business Lead­er­ship SA (BLSA) wel­comed the find­ings of KPMG’s in­ves­ti­ga­tion and its will­ing­ness to act decisively.

“It’s im­por­tant that, when business is ac­cused of wrong­do­ing, it does the right thing. We also call upon govern­ment to act decisively when­ever it is ac­cused of cor­rup­tion or wrong­do­ing.”

BLSA chief ex­ec­u­tive Bo­nang Mo­hale said the or­gan­i­sa­tion was sat­is­fied with the ac­tions taken by KPMG thus far.

The Black Man­age­ment Fo­rum and Black Business Coun­cil opted not to com­ment.

The board of the In­sti­tute of Direc­tors in South­ern Africa an­nounced in a re­cent state­ment that it would be dis­as­so­ci­at­ing it­self from KPMG.

PHOTO: EPA

A man pro­duces cook­ing pots from waste metal at a re­cy­cling ware­house in Koumassi in Abid­jan, Ivory Coast, on Thurs­day. Small busi­nesses make up a large por­tion of Ivory Coast’s econ­omy. The for­mer west African pow­er­house is still re­cov­er­ing and re­build­ing af­ter years of in­sta­bil­ity due to so­cial un­rest

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