BLOODBATH AT KPMG
Auditing firm says there was no political motivation behind its Sars rogue unit report
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.
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