Mailbox: On KPMG, dinosaurs and wrath – why blockchain could disrupt auditing

JOHANNESBURG — KPMG’s announcement last week that it has cut 400 staff from its South African operations became the latest challenge faced by the Zuptoid-cursed auditing firm. KPMG will scale back its operation considerably in South Africa as its clients – including the likes of the Auditor General – have departed the auditing firm in droves. But as this reader outlines here: perhaps the KPMG situation will spark a greater rethink around auditing firms? After all, technologies such as blockchain have the potential to decentralise auditing functions completely while algorithms and AI tech gets smarter by the day. – Gareth van Zyl

By Ernest McPhail

“Never go to bed mad. Stay up and fight.” – Phyllis Diller.

Credited as a trailblazer comedienne, the late Phyllis Diller was an equally accomplished actress, musician and author. But that is besides the point. KMPG’s Gupta-entangled leadership need to take note. A recent letter by one of KPMG’s retrenched staff members, titled “Thrown under a bus! 10 things 400 angry KPMG staffers want SA to know”, raised various interesting (additional) questions about the moral standing of KPMG’s top brass. It clearly also exposed a few wounds, opened by KPMG’s vexatious and iniquitous axing of employees—seemingly unsympathetically. And evidently the mad employee wants to fight.

Revealed! Taxpayers picked up tab for THAT big fat Gupta wedding – guided by KPMG. More magic available at www.zapiro.com.

KPMG’s hasty eighty-odd word response to the disgruntled ex-employee, quite frankly, managed to set alight the pissed-off fire in me too:

We recognise the impact on our people that the proposed retrenchment process has and would like to reinforce that we are working hard to carry out the reshaping of the business in a manner where people are treated with dignity.

We do not recognise the version of events presented in the letter. We are confident KPMG has responded appropriately to events and is taking the right steps to restore the firm’s reputation and set it on a sustainable footing.

KPMG should have responded in a more humane and humble fashion! The glaring fact that:

  • “our people” couldn’t possibly refer to the departed employees;
  • that there is little dignity in the humiliating process of being retrenched—more so when paying for your leader’s sins;
  • and KPMG’s cocksure attitude regarding their actions, is cause for concern—and anger

Recent increases in staff resignations, coupled with forced layoffs, have ironically lead to a higher partner to staff ratio. Over the past year, employee headcount had shrunk by roughly 35%, while those at the top have been relatively unaffected.

The future of Auditing?

Could the corrupt actions of KPMG and others, act as a catalyst—albeit small and weak initially—for focused entrepreneurial activity directed at disrupting the audit profession?

Around the time of the subprime mortgage crisis in 2007, an individual or group operating under the pseudonym of Satoshi Nakamoto started work on Bitcoin. The timing of Satoshi’s white paper on October 31 2008, was pretty much spot on. The transformative power of blockchain technology on which Bitcoin was built became glaringly evident, and most importantly, relevant to the circumstances of the day. A nascent technology that had the power to disrupt the banking sector in its current form, to the extent of potentially rendering it obsolete! Add breakthroughs in the areas of especially machine learning, and it appeared that we were potentially on the brink of a Darwinian war. JPMorgan’s Chairman and Chief Executive, Jamie Dimon famously admitted as much when he wrote to shareholders in 2015 that “Silicon Valley is coming”.

A Bitcoin logo is displayed at the Bitcoin Center New York City in New York’s financial district. REUTERS/Brendan McDermid

It is reasonable to assume that the Great Financial Crisis would have set in motion increased numbers of entrepreneurs in the Fintech industry. Capitalising on the public’s negative sentiments toward banks and the pressing need to find less antiquated solutions.

Elements of robotic process automation are already employed by the big audit firms internationally to eliminate much of the ticking and bashing that is part and parcel to the audit process.

Most financial behemoths recognise both the threats and opportunities that technological progress presents. RMB’s fintech innovation hub FOUNDeRY springs to mind as forward thinking. Even the SARB is doing some refreshing work on the blockchain front!

Still, it might be delaying the inevitable; dinosaurs on account of their sheer size and might, once ruled over nature, but smaller, nimbler and cerebrally gifted creatures took their place. We may just see change sooner rather than later.

The technology is ripening

The audit profession enjoys protection through their services being legislated by government. Imagine the use of blockchain based technology to decentralise their auditing activities, including legislation that recognises the blockchain application as a legitimate audit provider? Coupled with machine learning algorithms and uploading of financial source documents to the blockchain network, the audit process will proceed in a distributed fashion without much human intervention.

Regrettably, we are not there yet. However, technological advances tend to proceed at an exponentially increasing rate, disproportionately favouring early starters and successful first adopters.

Embracing umbrage

Society’s angry individuals fulfil an all-important role. Some, like those no longer included in KPMG’s “our people”, act as messengers. Others direct their anger into building solutions.

These are the galled ones staying up for the fight.