CAPE TOWN — If ever you wanted a slick reprise of the KPMG/SARS ‘rogue unit’ debacle and the context in which it was able to happen, this piece by Marianne Thamm, does the trick. She details how we’re doing an “outside-in” job on the endemic State Capture and corruption in South Africa – leaving the elected Zuptoid politicians and their protective State institutions until last as we successfully white-ant the corporations that greased the wheels of the massive graft machine. With the inner circle of politicians, their tenderpreneur beneficiaries and networks snouting for all they’re worth while they still can, it’s the Bell Pottinger’s, KPMG’s, Trillian‘s and McKinsey’s that are being knocked over like skittles, some more resilient than others. They don’t have the luxury of tame state prosecutors, police and so-called public protectors to keep the enemy at bay. The private sector has proved its mettle with its professional watchdog bodies, both here and overseas, by fulfilling their mandates, while parliament’s standing committees, though somewhat compromised by Zuptoid-friendly MPs, have proved their worth in calling rampant SOE leadership to account. Thamm also reminds us that several international firms being linked to State Capture and corruption are not exactly clean, historically. (The story below is republished per kind favour of The Daily Maverick.) – Chris Bateman
By Marianne Thamm
Speaking at the Mining Indaba in Cape Town in 2014, former British Prime Minister Tony Blair, in his keynote address, mentioned how most of the world’s politicians, including himself, are not qualified to do the job.
Blair is not exactly a beacon of moral rectitude, considering his role in dragging his country into the sham invasion of Iraq in 2003, but he has occupied No 10 Downing for 10 years, so he knows the terrain.
The problem with politicians, said Blair, is that while they’re great at the theatre of campaigning and making promises to voters, when it comes to doing the actual work, most are desperately inexperienced.
“One of the first things you learn when you come into office as a Prime Minister or President, and one of the odd things of my profession – unlike others, where you put someone in at the top with experience – is that my profession is the only one where you come in and then you are just there. You could be the world’s greatest communicator, but once you get in office… you have to implement, and saying is a lot easier than doing.”
Which is why solid checks and balances should exist – in the public and private realm – in order to hold accountable and contain these generally unqualified public representatives. Politicians, because of their close proximity to vast state (public) financial resources, attract, like flies to a collapsed pit latrine, those seeking to exploit this.
If the systems of the state are sound and functional, the corrupt will be snared. But if large parts are compromised and captured, as is the case in South Africa, it becomes much harder to corner the abusers.
Instead you first have to go for those who help them, the auditors, the lawyers, the consultants who survive and thrive on bloated fees and lucrative contracts, until, one day, a brave whistle-blower or person with a conscience unmasks the sham.
Corruption Watch executive director David Lewis explained it this way in a recent piece published in Transparency International.
“When, in the period leading to the formation of Corruption Watch, I traipsed around South Africa and the world seeking the support of multilateral institutions, fellow NGOs and potential funders, I encountered one strikingly similar response. ‘You have,’ said those to whom we presented our case, ‘a strong foundational law and an acceptable anti-corruption legal framework; you have an independent judiciary; a robust media; and an active, battle-hardened civil society. These are the critical ingredients for a relatively corruption-free society and yet you say that corruption is burgeoning. What’s the problem?”
The problem soon became evident, said Lewis, in the course of Corruption Watch’s work.
“… the answer is to be found in our hopelessly compromised criminal justice institutions, particularly the National Prosecuting Authority and the Directorate for Priority Crimes Investigation (the DPCI, or the Hawks).”
With this door firmly shut and our NPA head Shaun Abrahams missing in action, Corruption Watch attempted to find other mechanisms of sanction and accountability.
“‘Naming and shaming’ is one obvious weapon and it has been a significant element of our very active public communication strategy. We have explored sanctions in our Companies Act (to which most state owned enterprises – SOEs – are subject) and are currently pursuing legal action to have the board members of one large SOE declared delinquent. We have sought to persuade professional bodies to use their considerable punitive powers to sanction malfeasant members of their professions. We have sought the assistance of external agencies whose jurisdiction extends to conduct in South Africa. We are currently requesting the US Department of Justice to investigate the conduct of McKinsey, the large US registered international management consultancy.”
And so it is that KPMG finds itself as one of the accused now in the full glare of the spotlight with what remains of its reputation, considering the firm has also found itself foul of the law in other countries. In 2003 KPMG admitted criminal wrongdoing in creating tax shelters for wealthy US clients. In 2014 the UK introduced new regulations requiring auditor disclosures on annual reports after KPMG’s audit of Rolls-Royce. These are just two of many scandals.
Sadly, KPMG is not the only global auditing giant to have been caught out. Deloitte was fined £4-million this year by the UK’s Financial Reporting Council for its audits of Aero. PricewaterhouseCoopers received £3-million in fines for its audits of subprime lender Cattles. In May, the Financial Times reported that in 2016 the FRC handed out fines totalling more than £6.5-million to two of the big four global auditing firms.
The South African Independent Regulatory Board for Auditors (IRBA) announced on 6 October that it will extend the scope of its investigation into KPMG SA “to include the conduct of the auditor responsible for producing the forensic SARS ‘Report on Allegations of Irregularities and Misconduct’.”
It was David Maynier, DA Shadow Minister of Finance and member of Parliament’s standing committee on finance, who had written to IRBA CEO Bernard Agulhas requesting that the SARS report also be probed alongside other work KPMG had done for Gupta-linked businesses.
SARS Commissioner, Tom Moyane, who has disputed the right of KPMG SA to withdraw the findings and conclusions of the report, which cost R23-million, has also written to Standing Committee on Finance chair, Yunus Carrim, to express “dissatisfaction” with the manner in which KPMG handled the withdrawal of the findings and conclusions.
Maynier said that “the commissioner seems to want the committee to scrutinise KPMG International’s handling of the controversy surrounding the SARS ‘rogue unit’, when the committee should, in fact, be scrutinising SARS’ handling of the controversy surrounding the SARS ‘rogue unit’.”
Maynier too has written to Carrim requesting the scheduling of hearings “to scrutinise SARS’ investigative review of the so-called SARS rogue unit”.
In order to accomplish this, said Maynier, the Standing Committee on Finance needed to be given access to copies of the draft report, any other drafts, the service level agreement between SARS and KPMG SA, copies of all communication between SARS and KPMG SA on the mandate to include conclusions, recommendations and legal opinions, as well as copies of all communication between SARS and KPMG International relating to the investigative review of the SARS rogue unit.
KPMG International is still in the process of setting up an “independent” investigation in South Africa into work done for Gupta-linked businesses as well as the SARS report.
“The investigation will be led by a senior South African legal figure, who is completely independent of both KPMG South Africa and KPMG International,” said KPMG International Chair, John Veihmeyer.
It is unclear what the legal parameters or the mandate and powers of this “independent” inquiry will be or how its findings will be implemented.
However, evidence that will most certainly be presented is that by junior auditor Roné Alex, who had alerted her superior – audit partner Jacques Wessels – to the fact that the Guptas’ Linkway claiming of R30-million for the Sun City wedding could not be a business expense.
— Jay Naidoo (@Jay_Naidoo) October 11, 2017
#GuptaLeaks emails revealed that on 18 September 2014, Alex had emailed Wessels to record: “We are of the opinion that these [wedding-related] costs are most probably not in the production of Linkway’s income”. Alex also asked for “more clarity on the purpose of this company [Linkway]”.
Before KPMG International swept into town and dished out pink slips and the golden handshakes to nine senior employees, KPMG leadership at the time swept aside the matter Roné Alex had raised, releasing a statement that the audit of Linkway Trading had been conducted “in accordance with International Standards on Auditing” and stating that the firm stood by the audit opinion offered.
On Monday, as yet another business, the Foschini Group, dropped KPMG SA, CEO Nhlamu Dlomu announced a new executive team that she hopes will offer “support in restoring public trust and rebuilding the firm”.
“I am pleased to announce a strong and experienced team of KPMG partners to lead the firm. This is day one for the new KPMG, a KPMG where public interest will share an equally important role with enhanced governance, quality and ethics. We understand that the immediate road ahead will be challenging, but I believe the individuals in this team have the necessary skill, experience, passion and energy to lead KPMG to, once again, be a standard setter in the profession,” Dlomu said in a statement.
Dlomu’s new team consists of Gary Pickering, CA and audit partner who will lead Audit; Sipho Malaba, CA, who will continue as the executive team member responsible for the Financial Services Audit as well as leading the firm’s strategic projects; Granville Smith who will head the firm’s Advisory practice, and Joubert Botha, currently Chief Operating Officer for Tax, who will serve as interim leader for that part of the business. Modise Maseng will lead KPMG’s Public Sector work and Makgotso Letsitsi will head KPMG People.
She added that all three functions of the business Audit, Tax, and Advisory will be supported by the Markets team led by Nosisa Fubu.
Andrew Cranston, a senior partner in the KPMG International network, has been appointed as the interim Chief Operating Officer.
“As part of KPMG South Africa’s action plans to improve governance and risk management, we have allocated a full-time executive position to the Head of Risk, to manage client acceptance and retention within the firm. That role will be filled by Brian Stephens, a South African who is a former partner of KPMG’s US member firm,” said Dlomu.
Ultimately this is all about turning off the taps of corruption in the public and the private sector that threaten the stability of South Africa’s young democracy.
We pay our taxes in the belief that those we elect to high office will do what is right with this public money.
If the executive is unaccountable, if Parliament is too weak to call the thieves to account and the criminal justice system is too compromised to move, then all that is left is the courts. In the private sector, it is now clear, reputation and trust, in the end, are a much more worthy long-term strategy than quick, ill-gotten bloated profits and salary cheques and incentives for executives.
It is the threat of losing clients and future business that stirred KPMG to action. The collective response from the business sector, civil society and the media, is what has brought the firm to its new Day One.
In the meantime, those politicians, ministers and government officials who have enabled the siphoning off of R100-billion in a country crippled by unemployment, poverty and inequality, still occupy high office. They still campaign, dress up, kiss babies and promise transformed lives.
None has as yet felt the chilly embrace of a prison cell. But will anyone from McKinsey or KPMG be sharing a cell with a politically exposed individual in the near future? Let’s wait and see.