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
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).