THE BLOG

KPMG SA Has Shown A Flagrant Disregard For Our Cherished Democracy

Thanks to amaBhungane's #Guptaleaks, South Africans have for months known of companies such as KPMG SA who enjoyed a cosy relationship with the Gupta family.

18/09/2017 10:04 SAST | Updated 19/09/2017 07:50 SAST

Releasing bad news on a Friday afternoon to avoid media scrutiny is what politicaldictionary.com defines as a Friday news dump, which was exactly what KPMG SA did on Friday, 15 September 2017, with the release of a statement that an independent review concluded that the auditing firm produced substandard work and that it is withdrawing its report based on an investigation into the High-Risk Investigations Unit of the South African Revenue Service [Sars].

In an attempt to regain the public's trust, KPMG SA CEO, Trevor Hoole, and seven others cleared their desks, paving the way for the auditing giant to rebuild and move forward. However, the steps taken by KPMG SA are too little too late, as its handling of damaging revelations is likely to be a lesson on how the dogs-may-bark-but-the-caravan-moves-on-strategy is not always the best one to follow.

Thanks to amaBhungane's #Guptaleaks, South Africans have for months known of companies such as KPMG South Africa [KPMG SA] who enjoyed a cosy relationship with the Gupta family. We knew from the #GuptaLeaks that KPMG SA overlooked the use of taxpayer's money in footing the bill for a lavish wedding of a Gupta family member.

This led to the Independent Regulatory Board for Auditors investigating KPMG SA to see if it ignored regulations in its audit of a company owned by the Gupta family. Yet, despite the many attempts to engage with KPMG SA, management arrogantly snubbed its nose at the outcry and continued earning millions from South African tax coffers.

It is only now that KPMG SA has been found lacking in ethical conduct and accounting competence by KPMG International that its hand is being forced to show at least some form of contrition and let a few heads roll.

While lives were being ruined and reputations shattered, KPMG SA ex-CEO Trevor Hoole ignored any inquiries about the SARS report that was of national importance.

If the questionable role of KPMG SA in relation to the Guptas and others who are intent on capturing and looting the South African state had been the only egregious actions KPMG SA had been guilty of, then maybe the departure of firm CEO Hoole and seven others would have been sufficient. However, it is not, because the auditing firm's lack of a moral compass and independent conduct is systemic; more draft KPMG SA reports exist that simply confirm allegations made by the employer against honourable public servants.

The withdrawal of the Sars report that was compiled after KPMG SA investigated the revenue service's special unit, tasked with the investigation of organised crime and illicit trading at the behest of Sars boss Tom Moyane, confirms my suspicion that this once respected auditing firm has become its [pay]master's voice.

For a whopping R23.1 million, which KPMG SA will now repay or donate, the auditing firm produced a report that simply confirmed the allegations that Sars made against its principled employees and that formed the basis for the smear campaign aimed at the then minister of finance, Pravin Gordhan.

The report led to the National Prosecuting Agency (NPA) investigating Gordhan and even as late as the end of August of this year, media reports emerged that because of the KPMG SA report, moves were being made anew against Gordhan by the NPA, with the Hawks issuing a subpoena to a previous finance minister, Trevor Manuel.

While lives were being ruined and reputations shattered, KPMG SA ex-CEO Trevor Hoole ignored any inquiries about the Sars report that was of national importance, especially because taxpayer funds were used to pay for it.

Even when the JSE-listed asset management Sygnia CEO, Magda Wierzycka, requested KPMG SA to explain its relationship with the Gupta family, ex-CEO Hoole seemed wholly unaffected by any allegation of wrongdoing and blissfully unperturbed by the negative publicity. Now that KPMG SA has been found by an independent review to have done shoddy work with regard to the Sars report and the Gupta audit, the auditing firm can no longer bury its head in the sand.

We could be forgiven for believing that this really was an isolated event: that the Gupta audit and the SARS investigations are anomalies; however, this is not the case.

With the new CEO, Nhlamu Dlomu at its helm, the South African arm of KPMG is hoping to recover from its failings. In the statement withdrawing the Sars report, the firm suggests that it was the extension of the Sars mandate that caused the scope of the work to change, accompanied by its employees' failure to properly grasp the new risk associated with that change, which led to their failure to consult appropriately with risk management.

The wording of the statement leads one to conclude that this was a one-off occurrence; that ironically a rogue team within KPMG SA was responsible for its failings. Because the Sars report was used to take aim at a high-profile member of Cabinet who was viewed as inconvenient, we could be forgiven for believing that this really was an isolated event: that the Gupta audit and the Sars investigations are anomalies; however, this is not the case.

I know for a fact that hardworking civil servants in other government departments, who are sticklers for doing the right thing, were targeted for disciplinary action by departments using reports from investigations conducted by KPMG SA.

Since 2015 I have been wondering whether KPMG SA was the go-to auditing firm if government departments wished to discredit employees, whether it was possible that KPMG SA was engaged in a practice of investigating without independently verifying facts, whether their forensic investigators took what their clients said in the form of affidavits as gospel, proceeding only to look for evidence that confirmed the allegations made against low-level employees while ignoring evidence that clearly showed wrongdoing by the client's management team.

The Gupta-linked firm has undermined and weakened our hard-won democracy because competent and honest civil servants were targeted, resulting in some resigning while others took transfers.

I suspected that the conclusions reached by KPMG SA investigators in unsigned or draft reports were based on what the firm's paymaster wanted and, in so doing, KPMG SA provided its clients with the proverbial stick that could be used to whip out of the way any employee the employer considered a hindrance.

The statement released on Friday and the withdrawal of the Sars report confirmed these suspicions, as KPMG SA admitted that it expressed legal opinions and legal conclusions in the Sars report that were outside its professional expertise. KPMG SA's failure to appreciate that these opinions and conclusions were used by government departments and agencies to act against civil servants, as well as its failure to acknowledge that the legal advice given by auditors had caused great harm to diligent civil servants, makes its words of regret ring hollow.

On the taxpayer's dime, KPMG SA flagrantly disregarded standards as it engaged in the unethical practice of delivering exactly what its clients (government departments and agencies) wanted by investigating and producing reports that were used against state employees. In its role of being its master's voice, the Gupta-linked firm has undermined and weakened our hard-won democracy because competent and honest civil servants were targeted, resulting in some resigning while others took transfers.

We all know that a cadre of high-quality civil servants is a vital prerequisite for a strong democracy, yet KPMG SA allowed itself to be used by the vindictive and corrupt, which has resulted in a weakened civil service.

If KPMG SA believes that its mea culpa and the removal of CEO Hoole and seven others is sufficient to rid the company of the rot that has gripped it, then it is sorely mistaken. Those responsible for another forensic investigation and report that had no signature and was filled with legal opinions and conclusions, that I have personal knowledge of, are still at KPMG SA. Giving a few people the boot when the problem goes far beyond only those responsible for the Sars report, is like placing a band-aid on a bullet wound.

It is curious that even though revelations abound of the questionable role KPMG SA was allegedly playing under the Zuma-led government, respectable companies who are on the KPMG SA client list were mum on what KPMG SA was allegedly doing, as evidenced in the #GuptaLeaks.

If any lessons can be learned from the Bell Pottinger story, then it is that the most valued commodity for a service provider is its reputation.

It was only Sygnia CEO, Magda Wierzycka, who courageously spoke up and fired KPMG SA over its alleged role in state capture. At present companies are weighing their options as KPMG SA cleans house, and companies must remember that their deafening silence about the alleged corrosion of ethics at KPMG SA does not reflect well on them. Companies that decide to remain with KPMG SA, risk having their own reputations soiled, as any work done by KPMG SA will forever have the whiff of duplicity and compromise surrounding it.

Interestingly, the creature that is KPMG has displayed remarkable resilience to date for surviving scandal. This ranges from its admission of wrongdoing involving a German bank in a 2006 deferred prosecution agreement in the US to the 2017 probe by the UK accounting watchdog, the Financial Reporting Council, into the transactions between the accounting firm and Rolls-Royce during their 24-year relationship.

However, if any lessons can be learned from the Bell Pottinger story, then it is that the most valued commodity for a service provider is its reputation. KPMG SA has shown a flagrant disregard for our cherished democracy as it cosied up to predatory rent-seekers. The auditing firm has played a pivotal role in what Judge Johann Kriegler, in his foreword to the book "Rogue", described as the discernible pattern (across public institutions) where key individuals, experienced, reputable, and independent-minded public servants are cynically shunted aside or pushed out.

It is time that as South Africans we fight back against the weakening of our civil service and stop those who are enabling government departments and agencies to unfairly target employees who are unwilling to look away as state resources are being plundered and pillaged.

The impressive list of KMPG SA clients must accept that their own reputations as wholesome companies will be viewed with incredulity because of their association with an auditing firm that helped Sars remove honest and conscientious civil servants. Maybe these companies should stop navel-gazing while KPMG SA increasingly becomes a firm "for hire", earning millions by delivering the ammunition needed for government departments and agencies to persecute conscientious employees unless of course, companies want to do the same.