KPMG must disclose all Gupta dealings if it wants to redeem itself
As far as corporate accountability goes, the recent announcement that the chief executive and seven senior executives at auditing and consultancy firm KMPG in South Africa have resigned is a welcome development.
By resigning, the KPMG executives reinforced the principle of executive responsibility. This is a matter not taken seriously in South African culture, particularly in the public sector.
The usual pattern when misdemeanours are uncovered is for government ministers and other senior executives to blame their staff — or someone else — when things go wrong.
At this level, the action of the KPMG executives is to be respected. The hope must be that this behaviour becomes an example for others.
The KPMG case has set a new South African benchmark: executives assuming responsibility for wrongdoing in their organisations. South Africans should thank the firm for setting a new standard with this decisive action. Its executives have taken oversight responsibility for the actions of others.
The role that companies such as KPMG play is particularly crucial because auditing firms and consultancies are meant to hold companies and state entities to account by ensuring transparency and honesty. The fact that a firm of KPMG’s standing should be embroiled in a matter as murky as compiling false reports to serve the political ends of particular politicians highlights the degree of corruption that has taken hold in South Africa.
In light of this, are KPMG’s actions enough? I believe not. To pull South Africa back from the brink, the auditing firm should opt for full disclosure of all its involvements with the Gupta family as well as the companies they own. This should include releasing all working papers, correspondence and audit findings.
This would allow public scrutiny of the work the firm claims to have done under the banner of professionalism and would also provide the opportunity for a deeper understanding of the Gupta network. Nothing short of this will clear KPMG’s name.
From state to country capture
There is no doubt that KPMG’s report on a rogue unit, completed for the South African Revenue Service, has damaged South Africa’s image. But it has done more than that and raises the question of whether South Africa suffers only from state capture, or whether the rot is growing into the economic capture of the entire country — what I term “country capture”.
The basis for asking this question is that the South African economy — and, as a result, its citizens — is paying a heavy price for the mismanagement of the country’s resources. This has come about through a combination of bad and neglectful management and out-and-out corruption. All this has been for the account of South African taxpayers.
South Africa’s fiscal position is precarious, with a revenue shortfall of more than R50-billion expected in the fiscal year to March 31 2018. This growing shortfall is driven by subdued economic performance and will continue until domestic economic growth recovers.
Low economic growth and recessionary conditions have, in turn, been caused by state capture.
The private sector is reluctant to invest in the midst of corruption. This means no new economic activity is being started, a particularly bad situation given that industries such as mining are shrinking. This week, Implats announced it was in negotiations with unions to lay off 2 500 workers. Unemployment is already at 27.7%.
Individual South African taxpayers are therefore being forced to bail out the government as it faces fiscal difficulties, placing the country on the slippery slope of country capture. This is reflected in the fact that government’s final consumption expenditure as a percentage of gross domestic product currently exceeds 20%.
What next for KPMG?
Having ended up in this precarious position, it’s necessary to consider the way forward for KPMG and for South Africa.
KPMG clearly wants to save itself as a company and South Africa wants to rid itself of state/country capture. In redeeming itself, the firm can render a great service to South Africa in the quest to break the stranglehold. KPMG should disclose all dealings, findings, work papers, interactions and the like with the Gupta family businesses. This would achieve two objectives.
First, it would show who is implicated and who is not. KPMG stated that there was no wrongdoing on its side in audits it did on companies owned by the Guptas. But this can only be settled by full disclosure.
Second, such a disclosure would help to reveal the full scope of state/ country capture in South Africa.
Naturally, KPMG’s dealings with the Gupta companies and Gupta family are subject to client confidentiality agreements. KPMG should therefore inform the Gupta family of its intention to publish its dealings within seven days. If the Guptas object in writing, KPMG should approach the courts with a request to issue a clarification order to authorise disclosure.
This is the only way in which KPMG can salvage what’s left of its reputation in South Africa. (Perhaps KPMG should stand for: “Keep Pushing Mighty Guptas”.)
At the same time, South Africans could use the disclosures to begin to understand the full extent of state/ country capture and the remedial steps necessary to turn this around.
Here is a small opportunity to make progress towards some light at the end of a very long and dark tunnel. The opportunity rests in the hands of KPMG. South Africa waits.