KPMG bleeds clients
Johannesburg - KPMG is increasingly isolated and coming under pressure as Finance Minister Malusi Gigaba on Friday called on government and state entities to review all work the company has done.
The auditing firm this week lost its fourth private sector client.
At least 13 other private sector clients are reviewing their relationship with KPMG, and a major business organisation has suspended the company’s membership.
“In the immediate term, and as a measure to restore confidence in audits, all of government and its entities must consider reviewing their work programmes with KPMG to ensure their audit processes have not been compromised in any way, and to take appropriate steps if they have,” Gigaba said, who added that he was deeply concerned.
National Treasury said the scandal surrounding KPMG reaffirmed its belief that there should be mandatory rotation of audit firms.
“These developments have created a bad image, and have undermined the reputation of good governance and audit independence in one of the key sectors and institutions in our economy,” it said.
“[They] further highlight the risks posed by market dominance and concentration of a few firms in key industries, and offer yet another opportunity for introspections and reforms.”
The company has been tarnished by numerous dodgy dealings with the Gupta family and has been implicated as being part of the reason former finance minister Pravin Gordhan was fired.
JSE-listed Deneb Investments is the latest company to decide to part ways with KPMG, following in the footsteps of Sygnia Asset Management, Sasfin bank and energy investment company Hulisani.
“Deneb Investments has made the decision to change its auditors and this process is under way,” Rozanne Turkington, personal assistant to Deneb CEO Stuart Queen and chief financial officer Gysbert Wege, told City Press via email this week.
The loss of these four clients will cost KPMG more than R4 million in audit and other fees a year.
Absa, African Oxygen, Bidcorp, DRDGold, Esor, Gaia Infrastructure Capital, Interwaste Holdings, Investec, Lonmin, Randgold & Exploration, Sibanye Stillwater, Vunani and Wesizwe Platinum all said this week they were reviewing their relationship with the company.
The loss of these 13 clients would cost KPMG in the region of R278 million in annual audit fees.
Each client KPMG loses means a loss of confidence among the company’s remaining clientele and is a threat to jobs. In South Africa, KPMG employs about 3 600 people.
Hulisani’s audit and risk committee recommended a change to the company’s external auditors, from KPMG to its rival PwC.
According to Hulisani, the decision is set to be ratified at the JSE-listed company’s annual general meeting next month.
The company said that the recommendation took into account a number of factors, including responsiveness, experience in the renewable energy industry and KPMG’s well-publicised reputational risk.
Hulisani CEO Marubini Raphulu said: “PwC has specialised energy expertise, as well as experience in Africa. Hulisani was also impressed by the diversity within the firm; in the empowerment team that would be assigned to the business.”
Sasfin Holdings confirmed it was dumping KPMG immediately and would be switching to Deloitte & Touche.
The imminent implementation of mandatory auditor rotation in South Africa will provide many KPMG clients with a ready excuse to drop the firm without having to take a side.
That’s how Sasfin CEO Roland Sassoon framed it this week, after announcing that the bank would put its auditing work out to tender later this year. It has been a KPMG client for 18 years.
On Friday, the DA said that it governed, either directly or in coalition, more than 30 municipalities across the country.
The opposition party had decided to review all KPMG contracts to ensure that its auditing work had not been compromised by unethical practices.
In another development, the so-called SA Revenue Service (SARS) five will be meeting KPMG on Tuesday.
The five were ousted after a KPMG report into the so-called rogue unit at SARS.
They are SARS deputy commissioner Ivan Pillay, his adviser Yolisa Pikie, SARS group executive Johann van Loggerenberg, SARS spokesperson Adrian Lackay and group executive Peter Richer.
Pillay was out of the country this week, so was unavailable for comment.
Pikie said: “We have to hear from them and see what they have to say. They requested the meeting.”
The group of former SARS officials want more or less the same thing that Gordhan has demanded – full disclosure. After that, a damage claim could possibly follow the now repudiated KPMG work that cost all of them their careers.
“They have to say on what day they followed instruction [from] SARS and what those instructions were,” Pikie said.
This includes a leaked instruction from SARS’ lawyers telling KPMG exactly what to put in the “findings and recommendations” section of the rogue unit report.
These “findings” are precisely what KPMG has retracted and apologised for. There were, however, other direct instructions, Pikie claims.
The group will send a lawyers’ letter to KPMG next week, he told City Press.
KPMG is increasingly looking like former US auditing company Arthur Andersen, which crumbled in 2002 after being found guilty of criminal charges relating to the auditing of Enron, which filed for bankruptcy in 2001.
Despite the stench of corruption, many South African companies contacted by City Press are happy to be associated with KPMG, for now at least. However, as more information emerges, their relationship with the company could be placed under increased pressure.
Gold Fields, Redefine Properties, Old Mutual and Tharisa Minerals, among other companies, were sticking with KPMG as their auditor.
Several KPMG clients declined to comment on whether they would stick with the company, review the relationship or end the association.
In another development, the board of Business Leadership SA (BLSA) on Friday said it had decided to suspend the firm’s membership, pending the outcome of an independent investigation into the organisation’s involvement in conduct related to “state capture” in South Africa.
Bonang Mohale, BLSA CEO, said: “We are deeply concerned by the unethical and unprofessional conduct that KPMG engaged in in South Africa.
"The firm became party to the project of ‘state capture’, which has harmed our country, victimised certain individuals and damaged the reputation of business.”
Business Unity SA (Busa) called on KPMG to decisively, speedily and comprehensively investigate its alleged involvement in corruption and exercise appropriate judgment and oversight on what actions are required.
Busa president Jabu Mabuza said: “Business needs to be honest about its involvement in corruption and tackle the issue head-on.”
After an investigation, KPMG last week decided to retract its report into the alleged SARS rogue unit and to repay the R23 million fee it received for this work.
In response, SARS commissioner Tom Moyane’s press conference this week was bizarre, but not unprecedented.
Instead of threatening to sue KPMG for doing shoddy work, SARS instead threatened to sue it for admitting to doing shoddy work.
According to Moyane, the KPMG report is “sound”, even if KPMG says it “cannot be relied on”.
SARS is even threatening to sue KPMG for copyright infringement because the firm cited a sentence of the infamous report in its public apology last week.
According to Moyane, that report now belongs to SARS and no one, not even its authors, is allowed to publish any part of it.
KPMG’s loss of credibility could see many key reports it compiled being invalidated.
These include a confidential September 2006 forensic report that was included in President Jacob Zuma’s corruption trial.
Bloomberg reported this week that the probe into the sale of 10 million barrels of crude oil reserves might be delayed after Energy Minister Mmamoloko Kubayi said she had some concerns because KPMG conducted a key financial analysis in the investigation.
SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.