KPMG admits going to the Gupta wedding was a bad idea
The audit firm is bringing in a chief risk officer as it addresses a lack of ‘professional scepticism’
KPMG SA has conceded that its management team should not have attended the Guptas’ 2013 wedding in Sun City, saying it regretted its association with the politically connected family.
The auditing company has instituted a wide-ranging boardroom and executive clean-up, and will bring in a chief risk officer as part of sweeping measures to beef up its internal governance, which had been found wanting by its international arm.
This review found that KPMG SA had ignored "red flags" during the course of the Guptas’ bid to buy Glencore’s Optimum Colliery, but stressed that it had limited involvement in the controversial transaction.
Crucially, KPMG SA had been aware of, but ignored, "information which put the Guptas’ integrity into question".
"We got it wrong," said Andrew Cranston at KPMG’s Johannesburg offices on Friday morning, while delivering a stinging assessment of the auditing company’s work for the Guptas and the South African Revenue Service (SARS).
Cranston, of KPMG International, also expressed regret over the South African arm’s handling of its work for SARS, saying KPMG SA would pay back the R23m it had earned in fees from the tax authority.
It would also make a R40m donation "into education and anti-corruption for non-profit organisations".
"The R40m figure is based on the total fees earned from the Gupta-related entities to which KPMG SA provided services from 2002."
The audit company made a spectacular admission in this regard, saying the findings, recommendations and conclusion sections of its SARS report should be discarded as they overstepped the scope of KPMG SA’s initial mandate — in particular, the part of the report which said that former finance minister Pravin Gordhan should have known about or been aware of a so-called "rogue unit" at SARS.
A review by KPMG International of KPMG SA’s work for the Guptas and SARS had not unearthed any illegal conduct on the part of staff, but had found that not enough "professional scepticism" had been exercised, said Cranston.
As a result of this, CEO Trevor Hoole and chairman Ahmed Jaffer have resigned in the aftermath of the fallout from the controversies in which KPMG SA had found itself. So has Steven Louw, the country risk management partner and chief operating officer.
Nhlamu Dlomu is the new KPMG SA CEO, while Cranston will be interim chief operating officer for the next three to six months.
KPMG SA is also to announce a new management team in coming days following the resignations of Mike Oddy (head of audit and a board member), Muhammad Saloojee (head of tax and a board member), Herman de Beer (head of forensic and a board member), John Geel (head of deal advisory) and Mickey Bove (risk management partner for deal advisory).
Jacques Wessels, who oversaw KPMG SA’s audits of the Guptas’ nonlisted entities, will face disciplinary action with a view to dismiss him.
In terms of its work with the Guptas, specifically the Oakbay group of companies, the auditing company accused the Guptas of having misled KPMG SA "and responded to team inquiries in a way that was not correct".
During the course of its dealings with the Guptas, KPMG SA provided tax, audit and advisory services to the family and its companies. But the auditing company denies it helped the family and its companies with tax avoidance.
KPMG had roped in advocate Peter Solomon to determine whether or not KPMG SA had concocted an elaborate tax avoidance scheme for the Guptas. "In my opinion it is clear KPMG did not act unlawfully or improperly in giving the advice … I have not seen anything … which constituted KPMG advising its clients to partake in any form of tax avoidance, or which hinted at this possibility," Solomon is quoted as saying in a KPMG SA statement.
KPMG SA also said it had not provided the valuation for Oakbay’s listing, and that this had been done by a corporate adviser and a competent person — and this information was contained in Oakbay’s pre-listing statement, which was available to the public.
"KPMG feels terrible about the association with the Guptas," said Cranston, adding that the auditing company would undertake a full review of its portfolio.
Dlomu had 48 hours in which to digest her new role, and said that KPMG’s 3,400 staff members had felt the effects of the controversies in which the company found itself. She and her new team were ready to take remedial and corrective steps. "[We are] confident in the results of the investigation," she said.