EDITORIAL: KPMG’s offer cannot undo damage wrought on South Africa
The report by KPMG International on the work its branch in SA did for the Guptas and for the South African Revenue Services (SARS) is, in some ways, too little, too late.
The damaging report it did on the SARS "rogue unit" dates back two years and the firm’s work for the Guptas goes back much further than that, yet KPMG appears oblivious to the damage that its work for these clients had helped to do to key institutions and the very fabric of SA’s democracy.
Offering to repay R63m — the fees the firm earned from SARS and the Guptas — cannot begin to compensate SA or some of the people involved for the damage.
Nor, as former finance minister Pravin Gordhan and others have protested, does the offer go with any admission to anything illegal or corrupt — the firm’s investigation has found no evidence of corruption or illegal behaviour — and it has not even made it clear the "rogue unit" idea was a fabrication from the start.
Although eight members of the KPMG SA leadership have resigned from their positions, so far, only one is facing disciplinary action. It is also not clear how and why KPMG International was apparently so unaware of what was going on in SA. Whether its efforts to throw the South African firm under the bus in an effort to preserve its international reputation will succeed is as yet unclear.
Who is going to want to hire the firm after this? Even if its people did nothing dishonest or illegal, they emerged as incompetent and lacking in judgment and probity — essentials, one would have thought, in an audit firm.
Its review report talks about "work that fell considerably short of KPMG’s standards". It talks about how the firm "did not grasp the new risks" associated with the change in mandate when the SARS investigation was bumped up from investigating documents to making recommendations, including giving legal advice; how it failed to follow the appropriate risk management processes — or to give the subjects of this "contentious engagement" an opportunity to respond.
It speaks of the failure of the firm’s leadership to deal with information that called into question the integrity of the Guptas or to act when red flags about the family and its businesses went up.
This is a devastating reflection on the firm’s quality control. In a context in which mandatory audit firm rotation is being introduced, one has to wonder how many clients will be picking KPMG — and the reduction in choice in an already narrow market will come as no joy to big clients or even to KPMG’s competitors.
But even if it is too little, too late, it is welcome that the firm has finally taken action. Contrast that with international consultancy McKinsey’s ducking and diving over dodgy contracts with Eskom that suggest greed on a scale of excess that no other professional services firm has come close to matching.
AmaBhungane shows how McKinsey and Trillian, which had already charged R1.6bn for their services to Eskom in less than a year, had in mind to extract R9.4bn from Eskom over the next few years on "risk-based" turnaround contracts.
There is no sign that McKinsey recognises it has a problem, locally or internationally, so we can but hope that the US authorities to which Corruption Watch is now referring it, will take stern action. Meanwhile, McKinsey’s clients will surely vote with their feet — or should just as Bell Pottinger’s did — forcing the firm into liquidation.
All professional services firms need to look to the lessons to be learned here about knowing your clients; making sure they pass the "smell test"; and making sure that integrity and ethics are deeply imbued in the culture of the firm and the behaviour and attitudes of its staff — so that greed and poor judgment never risk sinking firms whose most crucial asset is their reputation.