When the lure of easy profits outweighs diligence – KPMG’s woes continue

CAPE TOWN — When the lure of a lucrative contract outweighs due diligence, the outcome can be terminally damaging, as the continuing woes of KPMG, outlined below, illustrates so dramatically. You can call it the Gupta curse because in this case it’s appropriate, but there’s a wider lesson about diligence on offer. The tragedy of high-level corporate greed is that innocent staffers often lose their jobs as victims of collateral damage. I’ll never forget being asked as a freelance health journalist to check out a local spinal surgeon who was making grandiose claims about his allegedly ground-breaking stem cell therapy restoring the ability of a quadriplegic to walk – and by implication that of tens of thousands of similarly-afflicted, suitable persons world-wide. The PR company involved, founded by a former Cape Times colleague, was exercising due diligence. It wasn’t so far-fetched, given some of our world-beating medical breakthroughs in so many disciplines. The surgeon turned out to be a complete charlatan who was days later exposed publicly by Die Burger’s health reporter. Multiply the averted reputational damage to that local PR’s company a thousand times and you’ve got KPMG today. – Chris Bateman

By Loni Prinsloo and John Bowker

(Bloomberg) – KPMG LLP is continuing to lose staff and clients in South Africa more than a year after issuing a public apology for some of the work it did in the country, according to people familiar with the matter.

A team responsible for US cross-border transactions in Africa quit because of limited workflow, said the people, who asked not to be identified because the information isn’t public. The drop off in work and departures are a consequence of the fallout from corruption allegations that engulfed former President Jacob Zuma and his friends the Gupta family last year, the people said.

The KPMG company sign sits at their offices in the financial district of Canary Wharf in London, U.K.

In addition, Dimension Data Holdings Plc became the latest firm to desert KPMG, passing an R80 million ($5.6 million) auditing contract to rival Ernst & Young, the people said. KPMG confirmed that Dimension Data changed auditors in June. Dimension Data didn’t immediately respond to a request for comment.

The latest revelations show KPMG is struggling to restore trust since being criticised last year over work done for the Gupta family, who are accused of using political connections including Zuma to siphon off state funds. The firm was also forced to withdraw the findings of a report it compiled for South Africa’s tax agency that was used as evidence in a police probe against former Finance Minister Pravin Gordhan.

“KPMG South Africa has made a number of significant changes to its leadership, governance and audit quality controls and continues to work tirelessly to restore trust in the firm,” a KPMG spokesman said by email. The firm introduced a number of safeguards and is encouraged by the number of clients that continue to retain its services, the spokesman said.

KPMG was among a number of international companies to be embroiled in allegations of corruption during Zuma’s tenure. Bain & Co. has started an independent probe into its own work for South Africa’s tax service, while McKinsey & Co. and SAP SE have accepted responsibility for improper work done for state-owned companies.

The head of KPMG’s South African office and seven other senior executives quit in September 2017 after an internal investigation found work done for the Guptas fell “considerably short” of the firm’s standards. The Guptas and Zuma deny wrongdoing.

In June, KPMG’s South African unit said headcount slumped to 2,200 from 3,400 a year earlier, with consultations for further reductions under way. It’s lost clients this year including Barclays Africa Group Ltd. and South Africa’s Auditor-General.

Not all customers have left the firm. Old Mutual Ltd., the 173-year-old insurer, is waiting for the auditor to report back on an internal review before making a decision, Chief Executive Officer Peter Moyo said in June.

The work previously done by the US cross-border-transactions team will be carried out by partners from KPMG’s global US capital markets group based in New York or London, the KPMG spokesman said.