Sars boss stands by ‘spy unit’ report
KPMG has done huge harm to itself, the audit profession and brand SA, writes Bheki Mbanjwa
SOUTH African Revenue Service (Sars) Commissioner Tom Moyane yesterday said the controversial “rogue spy unit” report, which has since been withdrawn by its compilers, auditing firm KPMG, was not faulty.
“So I didn’t find the report as flawed. On the contrary when the report was given to us, it gave one goose bumps that what Sikhakhane had unearthed was just a tip of the iceberg. That is why the (Directorate for Priority Crime Investigation, known as the) Hawks requested from us a copy of the report and that is why the investigation is continuing.”
An earlier investigation led by advocate Muzi Sikhakhane – which probed allegations that Sars established a covert intelligence unit that engaged in surveillance and unlawful interception of conversations, unlawfully revealed taxpayers’ information and traced vehicles – had confirmed the existence of that covert unit at the institution.
KPMG last week announced that it had withdrawn its report on the work the audit firm did for Sars.
Yesterday, Moyane announced a set of counteractions the revenue authority is considering against KPMG, after the withdrawal of the report.
“Sars has been completely taken aback by KPMG’s aberrant and unethical conduct. KPMG unilaterally announced the purported withdrawal of its report despite the existence of a service level agreement governing the relationship between the parties (Sars and KPMG),” said Moyane.
The KPMG report, in law, belonged to Sars and the auditing firm had surrendered all rights to it to the revenue service, he said.
“This abhorrent, unethical and unprofessional conduct by KPMG has left Sars with no option but to consider the following legal route: to institute legal proceedings against KPMG for reputational damage to Sars, including but not limited to a civil claim; to report KPMG to the relevant statutory audit bodies both locally and internationally; to report KPMG to the minister of finance with the aim to blacklist KPMG for its unethical, unlawful, and illegal behaviour.”
Moyane said Sars might also “immediately seize any work which KPMG is currently performing for Sars and assess the work KPMG has performed in the last 10 years, with the aim to determine whether there was a value for money and whether Sars should demand its money”.
Lastly, the revenue service is also considering reporting KPMG to Parliament through Scopa, said Moyane.
As the fallout deepens from the withdrawal of the report, KPMG said it would donate the R40 million it earned in fees from Gupta-controlled firms to charity and refund R23 million it earned after compiling the “rogue” report to Sars.
On Friday, KPMG South Africa appointed Nhlamu Dlomu as its new chief executive.
Dlomu said she was committed to restoring the embattled audit firm’s fundamental values of ethics and integrity in a bid to salvage its credibility as she takes over the helm at a time of deepening crisis.
This came as Trevor Hoole tendered his resignation on Friday as chief executive of KPMG SA, with chief operating officer and risk management partner Steven Louw also stepping down. Five other senior partners of KPMG SA also decided to leave the firm.
KPMG SA would also be taking disciplinary action seeking the dismissal of Jacques Wessels, the lead partner on the audits of the non-listed Gupta entities.
Former finance minister Pravin Gordhan has welcomed the withdrawal of the controversial report that led to him being charged for his alleged role in the unit when he was commissioner of Sars.
Economist Bonke Dumisa, who is also a qualified lawyer, said legally the report belongs to Sars and that the pronouncements by KPMG on the withdrawal of parts of the report could constitute a breach of contract.
Another economist, Dawie Roodt, said auditors always reserve the right to change their minds if the facts change. “If you look at audit reports, they are based on the information the auditors receive. It is never absolute,” he said.
Former Sars spokesperson Adrian Lackay, one of the officials implicated in the rogue unit allegations, refused to comment.
“We have decided that none of us are going to say anything publicly at this stage about Moyane and Sars,” he said.
KPMG said it was not able to offer a detailed response as “the pronouncements by Sars were being taken into consideration”.
THE scandal surrounding auditing firm KPMG will have huge implications, not only for the firm itself but for the finance industry, economists have warned.
Economist Dawie Roodt said the scandal was “up there” with some of the biggest experienced in the finance sector in recent years.
He said KPMG, which has already suffered financial loss, also stands to lose trust from the public and the business sector, which he said was an auditor’s most important asset.
“They (KPMG) have done other auditing firms a huge disfavour as they, too, will now be put under a magnifying glass.”
He said the scandal could also have huge implications for Sars and tax collection, as a tax collection agency has to be seen as being squeaky clean.
Economist Bonke Dumisa said KPMG had suffered serious reputational damage because “the more they are seen to be doing the right thing the more they are actually putting their own brand at stake”.
“It is a Catch-22 for them,” he said. Dumisa added that the admission by KPMG that some of its work had been sub-standard had opened a can of worms, and stressed that there were many other firms and auditors who flouted rules for devious ends.
“In the industry there are guns for hire, people who have been taking short cuts to make easy money, knowing the objectives.”
KPMG could also face serious sanctions from industry bodies. The Independent Regulatory Board for Auditors (IRBA) said it was conducting its own investigation into the matter and would be meeting with the new management of the firm.
“It is critical for the reputation of the profession and the stability of our capital markets that the IRBA continues to work with audit firms to strengthen independence, professional scepticism and compliance to standards,” the body said.
The South African Institute of Chartered Accountants (Saica) said it would await the finalisation of the IRBA investigation before instituting disciplinary action.
Only once a disciplinary process was complete would the body comment, as it did not comment on any disciplinary matter “whether foreseen, pending or ongoing”, it said.
“Depending on the extent of the transgression, Saica’s disciplinary committees may order that the member concerned be cautioned, reprimanded, or fined to a maximum amount of R500 000 per charge,” said Saica spokesperson Kulani Chauke.
Membership may also be suspended for a period not exceeding five years, or members may “also be excluded from membership or disqualified from applying for membership permanently, or for such period as the disciplinary committee may determine”.
KPMG’s decision to do business with the Guptas had finally come back to haunt them, but economist Azar Jammine asked why it was okay before “but now it’s not okay”.
Jammine, the director and chief economist of Econometrix, said it was too early to see if KPMG would survive this crisis.
“If some of their larger clients start pulling their business away this would be a disaster.
“This may not be as big a fallout for the economy as some are suggesting because some of the smaller and larger accounting firms might pick up KPMG’s clients.”
Economist Iraj Abedian from Pan African said it was “way too late” for KPMG to try and save their reputation.
“Even now they try to deny the real issues and damage caused to the economy. Understandably, they are scared of the truth.”
Abedian said even though the company had offered to repay Sars and donate the money it had taken from the Guptas to charity, this was not enough.
“The money involved is not the amount taken, but the actual damage caused to the economy and its economic governance institutions; the harm done to the brand South Africa, and the loss of investor confidence.
“They have also caused reputational damage to the audit profession.”
IT’S an absolute disgrace that an audit firm of the calibre and stature of KPMG would stoop so low, to do the bidding of the Guptas and Tom Moyane, and being complicit to corruption by implicating the former finance minister Pravin Gordhan and other highly placed individuals in a dubious and highly suspicious report.
Now that they have been exposed as frauds and may be going the same way down the tubes as Bell Pottinger, the PR firm that has inflicted so much damage and spread so much bane that affected race relations in this country, KPMG has some of their executives resigning and they offer to pay back their fee of R23 million they had received from Sars.
What a great, noble, honourable and magnanimous gesture! I am sarcastic, of course, as I should have said instead, that this move of repayment is squalid, vile, contempt- ible, repulsive and offensive.
Have they considered the damage they have done to the reputations of these individuals – their careers and their families and the pain and anguish they have put them through having the Hawks on their doorstep so many times, or have I forgotten that just before the Budget last year they dragged Gordhan to court about the so-called “rogue unit”?
The least they must do is to expunge and try to remove, if it is at all possible, the damage they have inflicted to the individuals involved, our institutions and to the economy as a whole, is to offer an appropriate multimillion compensation fee after an investigation by the criminal justice system and law enforcement agencies have established the details of the whole sad saga.
JM BOUVIER
Bryanston