INVESTING | August 18, 2017 11:02

Can KPMG survive Gupta deeds? 'Not just auditors; wedding planners too'

EDINBURGH -- KPMG, a global big four consulting firm, has underestimated the reputational risks of turning a blind eye to corruption and state capture. KPMG's reluctant apology for helping the Gupta family use state funds to pay for a lavish private wedding – and adding in a nifty tax dodge on this cash – has fallen flat. As top financial columnist Ann Crotty notes in the Financial Mail, many in the corporate world are unimpressed with the way KPMG boss Trevor Hoole and his team have handled explosive revelations of the company's role in helping a previously poor immigrant family from India raid SA state coffers. The KPMG response speaks volumes about the organisation's corporate ethics. – Jackie Cameron

By Thulisizwe Sithole

KPMG is compromised and in a corner after its apology in connection with its relationship with the Gupta family fell flat, says respected South African business columnist Ann Crotty.

The Gupta brothers – Ajay, Atul and Tony – are the people pulling President Jacob Zuma's strings. Through business deals that have relied on insider information and the help of compromised government ministers and civil servants, Gupta entities have sucked an estimated R100bn out of state entities.

This 'state capture strategy' has enriched the Guptas, catapulting them into the ranks of the richest.

KPMG has played a role in the Gupta-Zuma plans. It emerged that senior KPMG figures attended a lavish Gupta wedding – paid for by state funds and written off against tax in convoluted deals as Gupta auditors KPMG watched.

These revelations form the basis of a wry comment about KPMG that is doing the rounds in South African business circles – that they aren't just auditors; they are wedding planners, too.

That's not the only Gupta-Zuma corruption and state capture dirt on KPMG, though. Questions are also swirling about the role of the accounting firm in producing a report used to push former finance minister Pravin Gordhan to the political sidelines. Gordhan has been a vocal critic of Zuma and has highlighted patronage and corruption.

In a column for the Financial Mail, Crotty says that 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.

“On balance it's a positive development as it indicates someone is finally doing something,” Wierzycka told Crotty, before launching into all the reasons why a recent statement from KPMG CEO Trevor Hoole about the matter doesn't do the job.

As the Financial Mail highlights: 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 pointed out that she was "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, notes Crotty, 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."

Crotty comments: "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 told Crotty he 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, points out Crotty.

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," says Crotty.

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 is quoted as saying.

"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," comments Crotty.

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.” 

Nedbank and Standard Bank might soon find themselves reassessing their stance on KPMG. South Africans are increasingly baying for the blood of the corporate corrupt – and those who aid and abet and turn a blind eye – as the Zupta state capture strategy pushes the country deeper into recession and exacerbates social tensions.

Keep up with the role of KPMG in state capture here on BizNews:KPMG links exposed! 70 companies turning blind eye to Gupta state capture

South African business leaders have turned a blind eye to the role of KPMG in aiding and abetting the Gupta family, which effectively controls the ruling ANC through President Zuma. BizNews publishes the list of companies still doing business with KPMG - even though the Big Four consultancy appears unrepentant about its relationship with the Gupta family.

KPMG-Gupta links: Sygnia's Wierzycka fires KPMG for 'looking the other way'

Magda Wierzycka is the first leader in the business sector to take a firm stand against the big corporates who have benefited from state capture. Wierzycka said in a recent interview on television that she was prepared to be outspoken, even though this is not the done thing in the corporate sector, as she is fully committed to seeing a better future for South Africa. Meanwhile, KPMG leaders appear to have their proverbial heads in the sand, opting for a "silence is golden" approach to managing their reputation in this crisis.

Sygnia CEO Magda Wierzycka: 4 big questions KPMG must answer or it's fired!

Magda Wierzycka is one of South Africa's most successful female entrepreneurs, and arguably its most influential in the financial services sector. Wierzycka has also become one of the most outspoken South African CEOs on the subject of corruption and the abuse of the disadvantaged. Earlier this year, her criticism of asset management rival Allan Gray ultimately led to a change in the boardroom of Net1 - a Nasdaq-listed company accused of riding on the backs of welfare recipients. Now Wierzycka has taken action against Big Four accounting firm KPMG.

Just not good enough KPMG! CEO Hoole ducks, dives over Gupta scandal

While South Africans react with outrage over the vast and growing body of evidence that multinationals like KPMG and McKinsey have been complicit in the Gupta state capture campaign, the leaders of these companies are sitting pretty it seems. For example, neither the police nor the Financial Intelligence Centre appear to be investigating damning allegations that KPMG was aware of tax evasion and moneylaundering by the Gupta family. What's more, KPMG CEO Trevor Hoole and team don't seem to think they owe South African taxpayers a detailed explanation for the involvement of KPMG in Gupta affairs.

Meet unrepentant Gupta tax dodge 'lapdog' Moses Kgosana, KPMG heavyweight

Moses Kgosana was about to take the chair at Alexander Forbes Group Holdings when his name emerged in secret emails leaked from the heart of the Gupta family empire. He has been linked to an accounting manoeuvre that facilitated state payment for an extravagant private event. Read more.

Gupta tax dodge scandal: 7 questions KPMG bosses DON'T want to answer

Auditing firm KPMG has been thrust into the limelight for its relationship with the Gupta family - Indian immigrants at the centre of a state capture scandal that has engulfed South Africa. KPMG helped the Gupta family divert taxpayers' funds to pay for an extravagant family wedding at Sun City and went one step further in ripping off taxpayers by helping the family to avoid paying tax on the funds. Read more.