What now for dis­graced au­dit­ing gi­ant KPMG?

Au­dit­ing gi­ant KPMG’s rep­u­ta­tion is in tat­ters thanks to its “flawed” re­port that got Pravin Gord­han fired as fi­nance min­is­ter

DRUM - - Contents - BY RICHARD VAN RENSBURG AND JANE VORSTER

EVEN if you’ve never nee­ded to em­ploy their ser­vices or set foot in­side their im­pos­ing of­fices, you will have heard the name: KPMG – one of the big four au­dit­ing firms in the coun­try and one of the most solid, re­spectable in­sti­tu­tions too. Un­til re­cently. These days, how­ever, KPMG is on ev­ery­one’s lips for all the wrong rea­sons.

The global com­pany made in­ter­na­tional head­lines af­ter rev­e­la­tions that its South African di­vi­sion wrote a dodgy re­port that gave Pres­i­dent Ja­cob Zuma the am­mu­ni­tion he needed to jus­tify his shock fir­ing of for­mer fi­nance min­is­ter Pravin Gord­han ear­lier this year.

And if that wasn’t bad enough KPMG has also been forced to ad­mit its SA di­vi­sion should have re­signed as au­di­tors for the Gupta com­pa­nies much sooner and that the work they did for them fell con­sid­er­ably short of au­dit­ing stan­dards. Ac­cord­ing to re­ports, KPMG turned a blind eye as the pow­er­ful Gupta fam­ily wrote off bills to the tune of R30 mil­lion for their in­fa­mous Sun City wed­ding as “busi­ness ex­penses”.

All this came to light in the wake of the Gup­taLeaks emails, the trea­sure trove of cor­re­spon­dence that shines a spot­light on the con­tro­ver­sial fam­ily’s govern­ment and busi­ness deal­ings.

Fol­low­ing the re­lease of the in­crim­i­nat­ing emails KPMG was forced to con­duct an in­ter­nal in­ves­ti­ga­tion and come clean.

But now with its rep­u­ta­tion in tat­ters and ma­jor-league clients jump­ing ship the ques­tion is, how did such a re­spected com­pany get it­self into such a mess? And is there any way it can re­deem it­self?

WHAT EX­ACTLY DID KPMG DO?

Shortly af­ter be­ing ap­pointed by Zuma as Sars com­mis­sioner in De - cem­ber 2014, Tom Moy­ane hired KPMG SA to do a thor­ough in­ves­ti­ga­tion into al­leged ir­reg­u­lar­i­ties at the rev­enue ser­vice – specif­i­cally the ex­is­tence of a “rogue unit”.

There was spec­u­la­tion the unit, re­port­edly es­tab­lished by Gord­han, had spied on Zuma and other top-rank­ing gov­ern­ment of­fi­cials.

KPMG sub­mit­ted a ver­sion their fi­nal re­port to Moy­ane at the end of 2015. But it now turns out the re­port –which con­firmed the ‘rogue unit’ al­le­ga­tions used to pur­sue crim­i­nal charges against Gord­han and ear­lier get rid of deputy com­mis­sioner Ivan Pil­lay, SARS’ for­mer head of in­ves­ti­ga­tions Jo­hann van Log­geren­berg and other top of­fi­cials – was se­verely flawed.

In­stead of weigh­ing up dif­fer­ent points of view and in­ves­ti­gat­ing all com­pet­ing in­for­ma­tion re­gard­ing the ‘rogue unit’ to com­pile their re­port, KPMG SA ba­si­cally took their client’s ex­ist­ing con­clu­sions and then looked for ev­i­dence to back up these claims, ex­plains Hus­sein Solomon, se­nior pro­fes­sor at the Univer­sity of Free State’s de­part­ment of po­lit­i­cal stud­ies and gov­er­nance.

Gord­han, Pil­lay and co were ap­par­ently never con­sulted and any tes­ti­mony in­di­cat­ing mer­its to the es­tab­lish­ment of the unit was left out of the re­port.

Al­though the con­tents of the re­port haven’t been fully re­vealed, an­a­lysts say it was the fi­nal nail in the for­mer fi­nance min­is­ter’s cof­fin.

In a dra­matic about-turn KPMG is­sued a con­trite state­ment with­draw­ing the “con­clu­sions, rec­om­men­da­tions and le­gal opin­ions” of its re­port.

Al­though Gord­han has wel­comed the move he says it’s too lit­tle too late.

“It is un­for­tu­nate that a com­pany with the stature of KPMG has been found to be want­ing,” he says. “This is ex­ac­er­bated by their col­lab­o­ra­tion with the Gupta fam­ily.”

WHERE DO THE GUP­TAS FIT IN?

KPMG be­gan au­dit­ing Gupta com­pa­nies in 2002 and con­tin­ued in this role un­til March 2016, long af­ter do­ing busi­ness with the scan­dal-plagued fam­ily went out of fash­ion.

Some of the com­pany’s part­ners even at­tended the lav­ish wed­ding of Aakash Ja­ha­j­garhia and Vega Gupta – niece of broth­ers Tony, Ajay and Atul – at Sun City in 2013.

For­mer KPMG Africa CEO Moses Kgosana was among the at­ten­dees.

“I have never been to an event like that and prob­a­bly will not be­cause it was an event of the mil­len­nium,” he later gushed in an email to Atul Gupta.

It has since been re­ported that KPMG was aware the Gup­tas wrote off wed­ding costs as busi­ness ex­penses to avoid pay­ing tax.

Fol­low­ing an ex­haus­tive in­ves­ti­ga­tion by the amaBhun­gane Cen­tre for In­ves­tiga­tive Jour­nal­ism it emerged this money was part of R114 mil­lion the Gup­tas re­ceived from the Free State govern­ment to set up a dairy and farm­ing en­ter­prise.

By fol­low­ing the money trail amaBhun­gane was able to es­tab­lish this money was laun­dered through what’s now known as the “Dubai laun­dro­mat”, Gupta com­pa­nies in the United Arab Emi­rates, be­fore bounc­ing back to the fam­ily’s com­pa­nies in South Africa.

One of them was Linkway Trad­ing – and it was from here that R30 mil­lion was si­phoned off to pay for the wed­ding. A junior au­di­tor sounded the alarm about this un­usual ex­pen­di­ture but his warn­ing was ig­nored.

WHAT NOW FOR SARS?

Even though KPMG has with­drawn its re­port Moy­ane is stick­ing to his guns. He says the re­port was “not flawed” and is threat­en­ing to take le­gal ac­tion.

“Sars sees KPMG’s con­duct as noth­ing else but an at­tempt to por­tray Sars, its lead­er­ship and in par­tic­u­lar the com­mis­sioner as in­com­pe­tent, cor­rupt, in­ef­fi­cient and inv­olved in a witch hunt,” he says.

The dis­cred­ited re­port now puts Moy­ane un­der se­vere pres­sure, Solomon says.

It will cre­ate the ex­pec­ta­tion that peo­ple like Gord­han and Van Log­geren­berg will need to be re­in­stated or at the very least have their names cleared, he ex­plains.

WHAT NEXT FOR KPMG SA?

By fir­ing eight of its top of­fi­cials, in­clud­ing CEO Trevor Hoole, the com­pany is hop­ing to save face. It has also un­der­taken to re­pay the R23 mil­lion fee it charged Sars for the flawed re­port and has com­mit­ted it­self to do­nat­ing a fur­ther R40 mil­lion to anti-cor­rup­tion or­gan­i­sa­tions.

But even with a new boss, Nh­lamu Dlomu – for­merly the com­pany’s head for peo­ple and change – at the helm it’s go­ing to take a long time to re­pair the dam­age done to the firm’s rep­u­ta­tion, Solomon be­lieves.

It has al­ready lost ma­jor clients, in­clud­ing Syg­nia As­set Man­age­ment, Sas­fin and en­ergy in­vest­ment com­pany Hulisani, while oth­ers such as Absa and Bar­clays are re­port­edly re­view­ing their busi­ness deal­ings with the firm.

David Ever­att, head of the Wits school of gov­er­nance, has no sym­pa­thy for KPMG. “It’s not be­cause they had a sud­den change of heart that they came for­ward,” he says. “If they were not caught there would not be this pseu­doac­count­abil­ity.”

WHAT DOES THIS MEAN FOR ZUMA?

Many might ex­pect the KPMG scan­dal to be bad news for the pres­i­dent but it could also help him es­cape the huge sword hang­ing over his head, Solomon says. KPMG were also in­volved with lev­el­ling 783 charges of cor­rup­tion and fraud against him. So his le­gal team can now say: but if the KPMG re­port was flawed, what about their in­ves­ti­ga­tion re­gard­ing charges against Zuma? “For the Hawks and NPA head Shaun Abra­hams, who re­ally don’t want to pro­se­cute Zuma, this might be am­mu­ni­tion to kick the can even fur­ther down the road,” Solomon adds.

‘A com­pany with the stature of KPMG has been found to be want­ing’

Big com­pa­nies want to dis­tance them­selves from Pres­i­dent Ja­cob Zuma’s in­fa­mous friends, the Gup­tas.

Sars com­mis­sioner Tom Moy­ane in­sists the KPMG re­port was not flawed and is threat­en­ing to take le­gal ac­tion. SARS BOSS

Ac­cu­sa­tions of a rogue unit within Sars were used to fire for­mer fi­nance min­is­ter and Sars com­mis­sioner Pravin Gord­han (FAR LEFT), for­mer Sars deputy com­mis­sioner Ivan Pil­lay (CEN­TRE) and Jo­hann van Log­geren­berg (LEFT).

YOU’RE FIRED!

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