Compromised and in a corner
How KPMG’s apology fell flat
Investigations by the CIPC and auditors’ board add to the internal review of the audit firm’s relations with the Guptas
Sygnia CEO Magda Wierzycka, who fired KPMG last month, has no plans to rehire the compromised auditing firm, on the back of its admission that it should have stopped working for the Gupta family sooner, she has told the Financial Mail.
"On balance it’s a positive development as it indicates someone is finally doing something," says Wierzycka, before launching into all the reasons why a recent statement from KPMG CEO Trevor Hoole about the matter doesn’t do the job.
KPMG has begun a review of its work for the family at the centre of state capture allegations; it has suspended its audit engagement partner and is relieving two other partners of their board and executive positions.
Wierzycka says she is surprised it took KPMG so long to realise that it needed to do a thorough investigation — one that wouldn’t involve the partners who were close to the Guptas.
Last week’s statement from Hoole reminded South Africans that KPMG was more than just the auditor to Gupta companies, she says. It provided a range of advisory services, including on the listing of Oakbay, whose share price was underpinned by some questionable asset valuations.
Even less impressed is Corruption Watch’s David Lewis, who describes Hoole’s statement as a belated and inadequate mea culpa. Lewis says that until recently KPMG seemed to believe it was blameless, but with investigations on several fronts it is now keen to get ahead of the curve so it doesn’t look flat-footed later on.
That the firm was unable to see signs of potential danger until very late in the day is remarkable, given that a major part of its business is advising corporates on anti-bribery and corruption.
Lewis is particularly irked by KPMG’s stance on its notorious SA Revenue Service (Sars) report. "Because it wasn’t part of [KPMG’s] audit business, the report escaped scrutiny by any professional body," says Lewis, alluding to the inevitable dangers of powerful audit firms being able to offer a range of services to clients.
Lewis says the Sars report, which included allegedly damning findings against former Sars chief and finance minister Pravin Gordhan, was a key part of the state-capture plan. KPMG was paid R23m for the ostensibly independent report, though it was subsequently found to have included recommendations and findings made by Sars’s own legal team.
While the Independent Regulatory Board for Auditors (IRBA) has launched an investigation into KPMG, it only has jurisdiction over the audit work done.
Hoole said the investigation that now includes KPMG International will look into the Sars report.
But the good news for those who think the IRBA’s scope is too limited is that the companies & intellectual property commission (CIPC) is also on the case. The CIPC has drawn KPMG’s attention to section 76(3) of the Companies Act relating to standards of directors’ conduct.
Asogaren Chetty, at the CIPC’s governance, surveillance & enforcement division, has told the Financial Mail that the CIPC is focusing on the actions of the KPMG directors. "We expect decisive action from the board," he says.
The CIPC’s powers may seem limited in the grand scheme of things, but the prospect of a leading audit and advisory firm being on the receiving end of a compliance notice could cause enormous reputational damage.
Hoole thanked the many clients who were standing by the firm and "affording us the opportunity to fully and robustly review this matter". Given that some of its major clients — Nedbank and Standard Bank — were enthusiastic supporters of the CEO Initiative, Hoole must know standing firm has its limits.
Nedbank CEO Mike Brown has welcomed KPMG’s review. "We are following our internal process of assessment based on a variety of factors, including continued engagement with KPMG on this matter," he says.
A Standard Bank spokesman would not comment on individual cases, but says the bank is committed to doing business ethically and expects its counterparties to be similarly committed. "We exit relationships where that commitment is lacking."