🔒 PREMIUM: More KPMG blunders, this time in SA Parliament – many unanswered questions

LONDON — In this fascinating interview, SCOPA committee member and shadow finance minister David Maynier (pictured below) tells us about an eventful day in the South African Parliament where KPMG’s new CEO and chairman were grilled about corruption allegations. Maynier says the answers raised still more questions, reckoning this is very much the start of an embarrassing and lengthy public process where the Gupta auditors will be made to fully account. Another committee on which Maynier serves will now be even more keen to get its teeth into KPMG after the audit firm’s chairman was “tied up in knots” today when questioned on the infamous R23m SARS “Rogue Unit” report. This is now very definitely an existential issue for KPMG South Africa. And as it continues to blunder – including refusing to co-operate as promised with the regulator – the withdrawal of the firm’s licence has become a very real prospect. – Alec Hogg

It’s a warm welcome to David Maynier who’s the DA spokesman on finance. He joins us from CT. David, you spent the day in parliament today listening to the KPMG story from the new CEO, who only recently was the head of human resources. A whole team that has now been fired, retrenched, call it what you will, she was in the firing line. Just to help people understand the whole process. What exactly is SCOPA and where does this power come in to bring someone like a CEO of an audit firm to come and answer?
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SCOPA is the committee, at the end of the day, which is responsible for ensuring the public funds are spent for the purposes for which they are intended. I suppose, to put it simply, the premier committee in parliament responsible for fighting corruption. Given the fact that KPMG are alleged to have been the corporate grease allegedly lubricating the Gupta related deals. SCOPA decided to call them to account and parliament and SCOPA have very wide powers to summon institutions and individuals and, also to request documents so we have very wide powers and that’s why KPMG appeared today before SCOPA.

Is it a bit like the grand jury in the US?

It is a little bit like a grand jury and what makes SCOPA different is that members of parliament are entitled to cross-examine witnesses. Portfolio committees, ordinary portfolio committees’ members ordinarily do not have the opportunity to cross examine witnesses. In SCOPA we have the opportunity to cross-examine a witness and members for approximately 15 or 20 minutes. So, it is an inquisitorial system and a bit like a grand jury in the USA.

So, you had Nhlamu Dlomu who’s the new CEO of KPMG in front of you. How did she handle herself?

I think she probably did as well as she could under the circumstances. She pointed out, and I think everybody took in mind that she was only appointed 20 days ago. Of course, the person who should have been there to account was the former CEO and his top management team, Trevor Hoole, but at the end of the day I think she probably did as well as she could under the circumstances.

Why was Trevor Hoole not there?

Well, as I understand it he’s resigned and one of the factors which emerged this morning is that he appears and the top management still appear to be formally employed and there’s a big question about golden handshakes and what sort of golden handshakes may have been paid to these exiting executives. But at the end of the day he is no longer an employee of KPMG SA, and that’s why the new incumbent appeared before SCOPA.

So you didn’t have the power to subpoena him?

SCOPA would have the power, I think, to summon him but I think the chairperson decided that at least in a first hearing, it would probably be better to call the new CEO and her management team.

A first hearing, does that mean there could be another one?

I think that there are 2 possibilities. SCOPA are going to have to consider how they deal with KPMG SA, going forward because KPMG SA, as you may know, has committed now to subjecting themselves to an independent enquiry. So, I would foresee that KPMG SA will have to appear again to at least  discuss the findings of that independent enquiry but another committee, the Standing Committee on Finance, on which I serve is also considering convening hearings on the whole question of SARS and the allegations surrounding the SARS Rogue Unit and KPMG SA forensic report into the so-called SARS Rogue Unit. It’s quite possible that KPMG SA will be appearing before the Standing Committee on Finance and at some point, possibly in the future, the Standing Committee on Public Account.

David, you’ve got to love the SA democratic process that there are checks and balances and they can be brought to the attention of the public through live television, etc, as happened today. But just honing in on what actually went on in parliament. What was your thrust from the SCOPA committee, from the members of SCOPA? What was it that you wanted to know from KPMG?

Different members pursued different themes but at the end of the day I think the broad thrust KPMG International’s findings gave was that KPMG SA’s work did not meet an international standard, there’s a major question about whether completed, existing work underway and future work meets the standard that is required of auditors and whether indeed, the work which they have produced in the past and will produce in the future is of the required standard. I think SCOPA wanted to satisfy themselves of that. I have to say, and I think the chairperson of the committee, Themba Godi, probably shares my view is that we did not really get that assurance. You’re absolutely right. KPMG SA were subjected to a grilling but I’m not sure that we really got the kinds of answers and the kinds of reassurances that we would have liked.

That’s very difficult for them. They were the Gupta auditors for something like a dozen years. There’s ample evidence at what the Guptas were up to during this period and clearly also, evidence that KPMG was, if at best turning their eyes in the wrong direction. So, what was the conclusion when you say, ‘you didn’t get to the point that you perhaps were hoping to reach?’ What was your conclusion out of what Miss Dlomu was presenting back?

Well, at the end of the day there was, I have to concede, no real conclusion. KPMG SA has committed to producing further facts, which the committee are interested in. For example, the scope of work currently underway, the fees, and a whole lot of information but at the end of the day there wasn’t really a firm conclusion. I think what SCOPA may have to look at the results of KPMG SA’s independent enquiry. First, they are going to need the reassurance that the enquiry is independent and that the scope of the enquiry is not confined just simply to the 2 matters that were raised by KPMG International. That the enquiry actually looks at broader, possible systemic issues within KPMG SA.

Interesting you make mention about this independent enquiry because already the IRBA has said, ‘if KPMG is appointing and paying for it, then it can’t be independent.’ How did Ms Dlomu argue that it was independent?

She seemed to suggest that what they were considering was a senior judicial officer and again, we are going to have to assess once KPMG SA sets out exactly how they intend to structure this enquiry. Again, we’re going to have to satisfy ourselves that in fact it is (a) independent and (b) that the scope of the enquiry reaches beyond just the SARS Rogue Unit and the Gupta audits, and digs into deeper systemic issues in the company. What was interesting during the hearing and which certainly took me by surprise. Perhaps it ought not to have taken me by surprise is that I probed the whole question of the audits conducted by KPMG SA into Gupta related entities and the company revealed that they had audited approximately 35 entities for several years and yet in all that time they had never lodged one reportable irregularity with the regulator and it seemed to me that that was evidence that KPMG SA had turned a blind eye, certainly during the audits of the Gupta entities.

Well, an audit firm and its part of the law that your companies have to be audited, which means that the society is giving them a license to operate. Is there a possibility that that license to operate will be withdrawn from the company? Is that the logical or the end conclusion if they are being malfeasant?

Well, Bernard Agulhas, who is the CEO of IRBA appeared before the finance committee earlier this week and what again took us by surprise is that KPMG International had committed in that public statement that KPMG SA would, and the term they used was, ‘fully cooperate with the enquiry being conducted by IRBA.’ But what we heard was in fact, that they had not fully cooperated. Documents had not been provided to them. Documents had been provided in bits and pieces. In at least the view of the regulator KPMG SA was not fully cooperating with the enquiry. That certainly took us by surprise but what we then also learnt was that IRBA said there are only 3 outcomes to the enquiry. IRBA could decide to dismiss the investigation or the matter could be dismissed. Alternatively, they could levy a fine or their license could be withdrawn.

When it comes to the fine, they could only levy a fine of R250,000 per charge, which struck me as extraordinary given the fact that a fine might be levied of R250,000 for work that generated R23m in fees. At the end of the day, IRBA does have powers to terminate the license of KPMG South Africa and I think that is one possibility.

We saw that your party has got the ball rolling with Bell Pottinger in the UK and there, the license… Well certainly, it was like taking away their license to operate by having Bell Pottinger suspended from the PR council in the UK and of course, it went bankrupt very quickly thereafter. That does seem though, for many people in the business community, to be excessive. We’re having almost the antibodies of the establishment kicking back in and saying, “KPMG is too big to fail.” Where do you come at when you hear those kinds of comments?

Well ultimately, I don’t want to pre-empt the outcome of the two investigations that are going to be conducted by IRBA but I do think that we do have to bear in the mind the Reserve Bank’s position – that KPMG South Africa are responsible for auditing three of the four big banks and there will be consequences if the company’s license were to be withdrawn. At the end of the day (for me), I think what we need is absolute certainty that KPMG South Africa has cleaned up its act and that it is in a position to generate work, which meets all the audit standards in KPMG international standards.

A different angle that comes towards us is that in a young democracy, you’ve got to get your foundations right and if it is even perceived by the public that the elites – i.e. the business elites – are protecting/forming a lager around one of their own, that could send the wrong kind of messages. Just as a representative of the people – because that’s what you are, as a politician in parliament – how do you react to that?

Again, KPMG South Africa and the former Chief Executive Officer and the management team have to be held accountable for their actions. That’s why we’ve been very aggressive in calling for investigations to be conducted by the regulators and for enquiries to be conducted in parliament. They have to be held fully accountable and we’re committed to ensuring that they are held fully accountable, particularly by parliament.

David, what about the Rogue Unit? You did touch on that. That wasn’t the remit presumably, of what SCOPA was looking at today.

It was touched on during the SCOPA hearings but you’re absolutely right. It’s not primarily the remit of SCOPA. We’re likely to explore the whole question of the SARS Rogue Unit and KPMG’s forensic reports in the finance committee in future hearings.

That is, if one were to have a look at the real anger that exists in the South African public; it is the alleged capture of South African Revenue Services and the implication that has had on collection of taxes and the tax shortfall that we’re seeing, etcetera. When might that be dealt with?

Well, we are still considering those hearings but I hope that we will hold those hearings before the end of this term, which would be pretty much before the end of November this year. When we dealt with this matter in SCOPA, it was dealt with primarily by the new acting chairperson of KPMG and frankly, I tied him in knots. He was just simply not able to explain how KPMG South Africa had withdrawn the conclusions/recommendations/legal findings of the report, but that the main body of the report still stood. They were just simply uable to explain. For example, how it is that they were prepared to state that a statement/conclusion like the fact that the Minister had no knowledge of the unit within SARS – why that statement could be relied upon but had in fact, been withdrawn on the basis that it couldn’t be relied upon. They just simply couldn’t explain the discrepancy.

Well, it’s not the end but perhaps, the beginning of the end that we’re seeing now. Just to close off with though; right in the centre of all of this, is the Guptas. They’re the guys who did the nefarious deeds and yet, it’s the facilitators who are being nailed at the moment. When might parliament get around to calling the Guptas to come and answer for what they’ve done?

Well, I think it’s highly likely that the Public Enterprises Portfolio Committee that launched their investigation and their hearings: they have committed to calling the Guptas to appear before parliament and I think that’s also likely to happen before the end of this term.

The Criminal Justice System, the NPA, the South African Police Services, and the Hawks: they seem to have been awfully quiet on this matter. Is there anything that parliament can do to perhaps push them along?

I’m the complainant in two major cases relating to State Capture and I can confirm that both those investigations are underway and are taking place, and I hope that there will be an outcome. Certainly, the South African Police Service and the Hawks are accountable to parliament and do appear before the Portfolio Committee on Police from time to time, but those investigations are underway and I can confirm that because I’m the complainant in two of the main cases in the State Capture.

Many South Africans are pessimistic and concerned that nothing’s ever going to be done about it. Are they wrong?

Well, certainly from my perspective, I can confirm that those investigations are underway and I’m optimistic that there will be an outcome – that those investigations will be completed and I think that probably, at some point in the future, there will be an outcome.

And a Commission of Enquiry that was recommended by the former Public Protector: is there no move on that yet?

Well, no. As I understand it, the President regularly says that he has an appetite to appoint a Commission of Enquiry but that matter as you know, is tied up in court and I’m not optimistic that the Commission is going to be appointed any time soon, to be honest.

David Maynier is the Democratic Alliance spokesman on finance, joining us from Cape  Town.