KPMG digs itself in deeper
The senior managers KPMG said, just three weeks ago, “will be leaving the firm” remain on its payroll while they serve out notice periods, the company reluctantly disclosed during a disastrous appearance in Parliament on Thursday.
KPMG is struggling to contain the fall-out of an announcement by its international parent company that it had made serious mistakes in a report on a supposed rogue unit at the South African Revenue Service (Sars) and that it had failed to do a proper audit of a Gupta family company.
The Sars report allegedly helped to pave the way for the removal of former finance minister Pravin Gordhan and the Gupta company audit did not detect government money being used to pay for a family wedding, which was written off as a business expense for tax purposes.
At least some of those who were to leave KPMG in the wake of that admission did so with severance packages, the company said on Thursday. They were not actually working at its offices while they serve out their notice periods, it insisted, although they could be called in to assist if necessary.
Also, although KMPG promised in September to “fully co-operate” with an investigation by the Independent Regulatory Board for Auditors, the accounting firm on Thursday admitted it had challenged an IRBA request for some documents on the grounds of “jurisdiction”.
With a long list of wavering clients watching closely, KMPG SA’s new chief executive, Nhlamu Dlomu, and board representative Gary Pickering contradicted one another, and sometimes themselves, during questioning by members of Parliament’s standing committee on public accounts.
Several committee members left the four-hour meeting more worried about KPMG than when they had arrived.
“I have a view that is not very positive,” committee chairperson Themba Godi bluntly told the KPMG representatives.
KPMG seems to have “issues with ethical conduct” and has problems “in the DNA of the company”, he said, also referring to a “cloak-and-dagger” approach.
Dlomu and Pickering took every opportunity to stress there was no systemic risk for the government because of the problems at KPMG, which it described as limited and blamed on a few individuals.
But the auditor general, Kimi Makwetu, said at the hearing that his office, for one, was not yet convinced that there were not serious systemic problems and would wait for formal investigations in that regard.
Government business that was worth more than R1.5-billion over the past three years is not all that is at stake for KPMG.
“We are in the process of reviewing our audit relationship with KPMG and will advise them and our stakeholders, including the media, of our decision once our review process is complete,” JSE-listed Altron said on Thursday in response to questions.
In July, 99.96% of Altron shareholders had voted to retain KPMG as its auditors, although it now joins a long and growing list of organisations that have either publicly announced a review of KPMG contracts or have expressed reservations about its conduct.
The list is not limited to audit clients.
“We have engaged with KPMG and sought assurances on the reports and allegations levelled against it,” Anglo American said in response to questions. “KPMG has informed us of the independent investigation which it will conduct. We await the outcome of this investigation and will continue to engage with KPMG, while monitoring the situation closely.”
Anglo American is not audited by KMPG but KPMG lists the company as a reference in its list of credentials for work in lucrative areas such as strategy and development consulting.
The University of the Witwatersrand and insurance company Munich Re this week announced they had ended relationships with the company, joining companies such as Hulisani, Deneb Investments and Sasfin.
Business Leadership SA has suspended KPMG’s membership and the South African Institute of Chartered Accountants has announced an investigation separate from that of the IRBA.
There are also rumours that KPMG staff are ready or already trying to jump ship, some with clients in tow. But there are also rumours that other auditing companies are too afraid of reputational contagion to touch such staff.
That is not entirely accurate, Deloitte Africa chief executive Lwazi Bam said.
“Deloitte has decided that we would not in any way want to contribute to a potential destabilisation of KPMG. For this reason, we will not proactively pursue any of their clients, partners or staff,” she said.
“While not actively pursuing them, if we are approached by any KPMG clients, partners or staff, we will give consideration to these on an individual and considered basis, applying our established and rigorous take- on and recruitment processes, which include risk assessments and background checks.”
Fellow audit firm PwC said it follows standard policies when filling vacancies, which include observing “professional conduct protocols”.
In Parliament on Thursday, Dlomu, who was appointed KPMG chief executive less than three weeks ago, initially said she believed KPMG has “a role to play in the future” and asked for time to rebuild trust in the organisation. “We had a few of our people erring,” she said.
Two hours of tough questioning later, she said the matter is “about the survival as well of this firm”, but continued to insist just two mistakes had been made — in the auditing of the Gupta-family company Linkway Trading and in a report on the supposed Sars rogue unit.
MPs did not agree.
KPMG admitted to the mistakes because they were the only two that had been investigated by its international parent company, Godi said. Why should Parliament believe there had not been more?
Because internal checks and balances have consistently shown KPMG’s work to be of a high quality, said Pickering. But he had trouble explaining why these checks and balances had not detected the problems with Linkway and the Sars report.
Neither Dlomu nor Pickering seemed able to explain which parts of the partially withdrawn Sars report were still valid.
Nor could they satisfy MPs that KPMG had abided by its responsibilities to report suspected financial crimes.
“We have now fulfilled all our reporting obligations,” Pickering said. He maintained KPMG had not made such reports as far back as 2014 because it had not been aware of possible crimes at the time and because it had not done sufficient work to detect them. But he denied that KPMG had turned a blind eye to potential crimes.
Asked whether KPMG had reported possible criminal conduct by its own staff, Pickering said: “Not at this stage, but certainly, you know, the commitment we have given is that to the extent that we need to we will.”