Despite the Gupta, Sars and VBS mess, KPMG staggers on
Auditing firm lost more than 1,000 staff members and R1bn in annual revenue following a series of botches
Despite losing more than 1,000 staff members and R1bn in annual revenue following revelations of KPMG’s handling of the Gupta and VBS Mutual Bank audits and a discredited forensic report for the SA Revenue Service (Sars), the auditing firm’s executive chairperson Wiseman Nkuhlu believes it can still survive.
“KPMG can be saved. I believe we’ve hit the bottom,” Nkuhlu, who served as economic adviser to former president Thabo Mbeki, said in an interview on Wednesday.
KPMG lost 15 audit partners and several high-profile clients, including Gold Fields, Sasfin, Sygnia and Absa (then Barclays Africa), after its reputation was gutted by the scandals since the start of 2017. Early in 2017 the firm was accused of helping the Gupta family to evade tax and its own internal investigation showed that it was slow in responding to red flags on audit work done for Gupta-owned entities.
In September 2017, KPMG also withdrew the flawed report it had produced for Sars on the so-called rogue unit. The report was used by former Sars commissioner Tom Moyane to axe a number of senior staff at the tax agency, severely hampering its investigative, enforcement and revenue collection abilities in the process.
In April 2018, KPMG became subject of the VBS collapse. The forensic report commissioned by the Reserve Bank showed that KPMG partner, Sipho Malaba was among people who got “financial facilities” from VBS. These benefits were not declared to KPMG. He also gave a clean audit opinion, despite knowing that VBS’s financial statements were materially misstated.
Nkuhlu admitted that there is a risk of losing more business when the SA Institute of Chartered Accountants’ report on their VBS inquiry is published.
“It’s going to cause panic to some clients. But the analysis that we’ve done has taken into account lessons from mistakes we made in the Sars report, the Gupta audits and VBS. We’ve used all those lessons to review our policies and control procedures. I am confident that the probability of another VBS happening is remote,” he said.
“We have revised our policies and practices. Enforcement of compliance with audit standard is much stronger than in the past. The KPMG of November 2018 is not the same KPMG that was found to be complicit in state capture and corruption 12 months ago,” he said.
The auditing firm is bringing in an outsider – former PwC Southern Africa deputy CEO and past Saica executive president Ignatius Sehoole – to lead the business from May 2019 and convince the market that its internal culture has changed.
Sehoole will replace Nhlamulo Dlomu, who left in October to be redeployed to a “global role” in KPMG. Dlomu's appointment in September 2017 followed the departure of former CEO Trevor Hoole and other executives. Her appointment was controversial at the time as her background is in human resources, which is uncommon for the head of an auditing firm.
“Post VBS, sceptism by clients and other opinion makers about KPMG being able to reinvest itself has grown. Views kept coming to us that perhaps we need an injection of new culture, a person from outside. A South African with a proven record in the accounting and auditing profession and well respected by business,” Nkuhlu said.