Gordhan weighs legal action against KPMG
Firm withdraws SARS ‘rogue unit’ report Probes into KPMG’s link with Guptas continue
KPMG’s troubles are far from over as former finance minister Pravin Gordhan considers legal action and two regulatory bodies continue investigations that could have serious implications for the future of the audit and advisory firm.
Companies are also considering their relationship with the firm after it reported that it had been aware of, but ignored, “information which put the Guptas’ integrity into question”, and was withdrawing its report on the South African Revenue Service (SARS) “rogue unit”.
Investec CEO Stephen Koseff said on Friday that the banking group had given KPMG time to report and “we will be considering the report over the next week and will make a call”.
“We expect them to conduct themselves in an ethical manner and if they find anything untoward, we would expect them to take action — just the same as people would expect of us,” Koseff said.
Investigations by the Companies and Intellectual Properties Commission (CIPC) as well as the Independent Regulatory Body for Auditors (Irba) will ensure that KPMG’s own investigation into work done for Gupta-related companies is not the final word on the matter.
The two regulators launched their investigations during the past month.
An investigation conducted by KPMG International concluded with an unprecedented cleaning out of the top layer of KPMG SA’s management. On Friday, KPMG International stressed that the investigation did not identify any evidence of illegal behaviour or corruption by KPMG partners or staff.
The nine top executives were being removed because the
investigation had found “work that fell considerably short of KPMG’s standards”, said KPMG International senior partner Andrew Cranston.
The investigations by the Irba will determine whether KPMG standards and standards that auditors are required to comply with in terms of their licence to operate were ignored.
The South African Auditing Profession Act imposes onerous standards on registered auditors, including a duty to report irregularities.
Critically, one of the primary objectives of the act is “to protect the public in the Republic by regulating audits performed by registered auditors”.
Irba spokeswoman Lorraine van Schalkwyk welcomed KPMG’s decision to publish the summary of its findings but stressed, “the Irba will continue with its own independent investigation in order to bring the case to the necessary conclusion”.
She said the Irba could not indicate how long the investigation would take nor what allegations it would delve into. “It is, however, committed to per- forming a robust investigation in as short a time as reasonably possible to deliver on its mandate to serve the public interest.”
Asogaren Chetty of CIPC’s governance, surveillance and enforcement division also confirmed that it was continuing its investigation into the conduct of a number of KPMG directors.
The CIPC, which is responsible for monitoring the Companies Act, announced in August that it was investigating possible transgressions of the act by three KPMG audit partners who were suspended.
That investigation is expected to be extended in the wake of Friday’s news that nine partners and directors will be leaving the firm. Section 76(3) of the act requires a director of a company “to act in good faith and for a proper purpose”.
CIPC will also investigate KPMG’s engagements with Gupta-related companies in terms of possible contraventions of section 214 of the act, which relates to the making of false statements and reckless conduct. Unlike the Irba, whose authority is limited to KPMG’s audit work, CIPC’s authority extends to all the services provided by KPMG.
Chetty would not comment on details of the case. “For us, it is still early days,” he said.
The two investigations and Gordhan’s response puts paid to any hopes KPMG International might have had that the removal of the top executive team would quell public interest in the issue and allow the company to move on.
Gordhan said in a statement on Friday that if KPMG was “truly remorseful”, it should provide employment to former SARS deputy commissioner Ivan Pillay and others and establish a corruption-fighting unit within the company itself.
Gordhan said that he would be seeking legal advice on whether to take further action against KPMG.
While he welcomed the withdrawal of the report, he said KPMG should have had the “integrity and honesty” to state that the research and investigative unit at SARS was legal and that it had no basis to malign several individuals and facilitate the “capture” of the tax agency. He said KPMG International had not implemented its own criticism of KPMG SA, that those affected by its findings should be given a hearing.
“One would have expected KPMG to have the courage to admit, in the face of their own investigation, that the establishment of this unit was in fact legal. This option still remains open to them.”
SARS was unavailable on Friday to comment on KPMG’s withdrawal of the report into the so-called “rogue unit”.