WHY THE FURY OVER KPMG IS IN­TEN­SI­FY­ING

Financial Mail - - EDITORIALS -

Much of the dam­age that has been done to au­dit and con­sult­ing firm KPMG has been self­in­flicted. It hasn’t grasped that when things go badly wrong with any in­sti­tu­tion, the judg­ment by clients and stake­hold­ers is guided not by the na­ture of the disas­ter it­self but by the way it is han­dled.

Its ham-fisted ef­forts at dam­age con­trol sug­gest that if KPMG’S ad­vice to its clients is of a sim­i­lar stan­dard, these clients should be dash­ing out the door to find some­one else to look af­ter them.

A few weeks back, KPMG seemed to have acted de­ci­sively when it boldly an­nounced the de­par­ture of nine se­nior ex­ec­u­tives, in­clud­ing CEO Trevor Hoole. This was seen as a forced mass res­ig­na­tion — in ef­fect, dis­missal.

Now, how­ever, it has emerged that those ex­ec­u­tives were paid sev­er­ance pack­ages — pre­sum­ably com­men­su­rate with their se­nior­ity and ex­pe­ri­ence. This im­plies that rather than act­ing be­cause of any great con­vic­tion that er­rors were made, KPMG just wanted these ex­ec­u­tives to go, and go quickly, hop­ing this would make the

shout­ing stop.

In other words, KPMG pan­icked — bungling fur­ther by then only par­tially with­draw­ing its re­port on the al­leged Sars “rogue unit”. It mis­judged the scale of the dam­age and pub­lic sen­ti­ment, think­ing pay­ing back fees would be enough. It didn’t con­sult the ag­grieved vic­tims of the “rogue unit” episode be­fore de­cid­ing on its “repa­ra­tions”. And since then, KPMG has taken an in­or­di­nately long time to ap­point a panel to in­ves­ti­gate what went wrong with the au­dits of Gupta com­pa­nies and the Sars re­port. They are in the ab­surd po­si­tion of hav­ing ad­mit­ted fault be­fore even dis­cov­er­ing what they did wrong.

Cir­cuses have been run with a far greater sense of or­der, plan­ning and fore­thought.

Mean­while, clients desert steadily. Peo­ple who work at KPMG say the at­mos­phere is like a morgue, with peo­ple stealth­ily brush­ing up their CVS as if their lives de­pended on it.

Some have ar­gued that the fall­out over KPMG is over­done, that all it ac­tu­ally did was mess up a copy-and-paste job in the Sars re­port, over­reach on a few find­ings and fail to trace the source of fund­ing in an au­dit. They’ll say it’s not the first time SA has had an au­dit­ing disas­ter and point to Brett Keb­ble’s forged fi­nan­cials, African Bank’s un­der­stated pro­vi­sions and Leisurenet’s du­bi­ous in­come recog­ni­tion as just a few ex­am­ples.

But, ac­tu­ally, the KPMG case is the straw that broke the pub­lic’s trust. If you can’t trust just two items in an au­dit, why are au­dit­ing firms paid im­mense fees ev­ery year? It’s true that none of the au­dit­ing firms is en­tirely in­no­cent — it’s just that the buck has stopped here.

It speaks of other frus­tra­tions too: the use of ex­pen­sive con­sul­tants by or­gan­i­sa­tions that are sup­posed to have their own ex­per­tise.

There are many jokes about con­sul­tants, in­clud­ing that they look at your watch and charge you to tell you what the time is. Given the fees charged by KPMG and Mckin­sey, it seems there are many ex­ec­u­tives in state-owned com­pa­nies who can­not tell the time at all.

Per­haps it is time for au­dit­ing com­pa­nies to go back to au­dit­ing, rather than moon­light­ing (of­ten badly) as con­sul­tants and ad­vis­ers. They’re like doc­tors who de­cide they’re now go­ing to run the HR de­part­ment or man­age the hos­pi­tals too.

It is not just KPMG: the au­dit­ing pro­fes­sion has suf­fered se­ri­ous dam­age to its rep­u­ta­tion. We need to know what will hap­pen to fix it — be­yond snap­ping up clients who are de­sert­ing KPMG.

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