Politically incorrect since 2009
24 October 2017 11:21 (South Africa)
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KPMG: ‘Weak’ apology suggests company saw no evil, heard no evil – therefore did no evil

  • PAULI VAN WYK
    PAULI VAN WYK
  • SCORPIO
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KPMG’s written apology to South Africa, if one can call it an apology, purports to be decisive. Their local CEO Trevor Hoole resigns along with seven executives in KPMG’s audit, risk and tax departments as a result of a “comprehensive investigation” conducted by KPMG International. Disciplinary steps with the eye to a dismissal will also be initiated against the lead partner overseeing the audits of the non-listed Gupta companies. KPMG’s investigation relates to a series of damning stories by amaBhungane and Scorpio based on the #GuptaLeaks. We revealed how the Guptas laundered millions of rand earmarked for emerging black farmers in the Free State through Dubai to pay for the “event of the millenium” – the Sun City wedding. All this while #KPMG was supposed to look over their shoulder. Public pressure also ensured that KPMG revisited the discredited KPMG report into the South African Revenue Service (SARS) investigative unit made out as “rogue” at the end of 2014. KPMG’s conclusion to their investigation: They saw no evil and were repeatedly mislead. BY PAULI VAN WYK.

KPMG’s “apology” is weak on admitting their own culpability in the problems they created for South Africa. The firm took a leaf from Bell Pottinger’s book on Friday by releasing a statement slathered in PR speak: “While the investigation did not identify any evidence of illegal behaviour or corruption by KPMG partners or staff, this investigation did find work that fell considerably short of KPMG’s standards,” it said.

KPMG’s quality controls when investigating the SARS investigative unit made out as “rogue” were “not performed to the standard we expect”. For example, the report “was not subjected to second partner review”. The report also refers to “legal opinions and legal conclusions” as if they were mandated to do so. They were not. The language used in sections of the report has also found to be “unclear” and open for wide interpretation, the statement continues.

The report suggested, for instance, that former minister of finance Pravin Gordhan “knew, or ought to have known, of the establishment by SARS of an intelligence unit in contravention of the rule of law that was ‘rogue’ in nature,” KPMG said. And then it made an astonishing turnaround, based on the same facts: “This was not the intended interpretation of the report. To be clear, the evidence in the documentation provided to KPMG South Africa does not support the interpretation that Mr Gordhan knew, or ought to have know, of the ‘rogue’ nature of this unit.”

About the Guptas, KPMG were scathing. The family and their cohorts “responded misleadingly and inadequately” to auditor’s queries. KPMG also “identified, based on subsequent information that is now in the public domain, a series of misrepresentations from the (Guptas) over the period that KPMG South Africa provided tax advice”.

This appears to be a reference to a series of amaBhungane and Scorpio’s stories based on the #GuptaLeaks showing how KPMG allowed the Guptas to write off their niece’s wedding expenses (paid for by money stolen from emerging black farmers in the Free State) as business expenses. They even raked in a silk, Peter Solomon SC, to provide them with a legal opinion: “In my opinion it is clear KPMG did not act unlawfully or improperly in giving the advice….I have not seen anything….which constituted KPMG advising its clients to partake in any form of tax evasion, or which even hinted at this possibility.”

KPMG do admit however that they didn’t “appropriately apply our own risk management and quality controls”.

Ultimately, “KPMG South Africa regrets that its association with the Guptas and their business entities went on for far to long”.

Adding a sweetener after delivering this bitter news to South Africans, KPMG promised to “make a donation of R40-million into education and anti-corruption not for profit organisations”. That is in addition to the R23-million fee KPMG offered to pay back to SARS for the report they now branded as totally unreliable and withdrew.

But there are a many glaring deficiencies in this faux apology of KPMG. Here are the two most important ones.

KPMG wants South Africa to believe their auditors neither saw nor heard, and therefore did, no evil when it comes to the Guptas.

There is one thread that unravels it all. It is not a grand sleight of hand or a complicated audit formula. Nor is it their begrudging admission that former CEO Moses Kgosana of “event of the millennium” fame “should not have attended this wedding”.

It is KPMG’s deafening silence over the junior auditor warning KPMG’s audit partner responsible for their unlisted companies that all was not kosher.

Hidden in the #GuptaLeaks, a junior auditor wrote a remark that for the second time is KPMG’s undoing: “We are of the opinion that these (wedding-related) costs are most probably not in the production of Linkway’s income.” The junior auditor doubted that the Gupta wedding had anything to do with Linkway’s ostensible business, meaning that it could not be accounted for as a wedding expense.

KPMG's statement made no move to explain this anomaly.

But the biggest problem South Africa should have with KPMG’s statement is the part they played in the biggest political plot this country has seen in its democratic era. In summary: Between 2010 and 2014 SARS started to turn up the heat in critical investigations into the Zuma clan with their ties to the cigarette dynasty as well as their ostensibly charitable organisations, the Guptas, the ANC and several ANC funders. Most of the work fell to a SARS unit once known as the NRG, or National Research Group. They stepped on more sensitive toes than they could imagine. So current commissioner Tom Moyane was sent to SARS and the first thing he did was to initiate suspension and disciplinary proceedings against former deputy commissioner Ivan Pillay and head of investigations Johann van Loggerenberg, the investigative unit and several other officials close to Pillay.

Moyane contracted KPMG to investigate the unit and the report they spawned – of which some sections were copied along with spelling mistakes from SARS’ lawyers – has now been withdrawn. But the damage is irreversible. It gave credence to a now disbanded investigative team from Sunday Times’ stories (also withdrawn) that the unit spied on Zuma and ran a brothel. The unit has been branded as “rogue” with no proper evidence to do so. Around 50 senior SARS officials left the entity, resulting in a haemorrhaging of knowledge. Many of these officials were hounded by Moyane and company based on the “findings” of the KPMG report. Criminal charges were laid against Gordhan, Pillay and others based, in part, on the KPMG report. The criminal charges were later withdrawn, but former minister of finance Trevor Manuel has been subpoenaed to provide answers to the Hawks, yet again based on information derived from the KPMG report.

The KPMG report’s findings has been used as a political stick to bash the anti-Zupta faction into submission. Former Minister of police Nathi Nhleko and minister of state security David Mahlobo held press conferences based on the KPMG report, entrenching the idea in South African’s minds that SARS had a rogue unit and Gordhan was heading it. SARS is in a shambles, despite Moyane’s vitriolic protestations. It’s risk engine (the crown jewel in SARS’ collecting ability) isn’t functioning properly, Moyane has been accused by his own officials of driving a campaign against Gordhan, and the tax ombud found SARS has illegally withheld tax refunds to boost its year-end figures.

And to crown it all: SARS has now missed its first-quarter tax target by R13-billion.

But on Friday KPMG has attempted to appease us with the following line: “We recognise and regret the impact this has had. KPMG South Africa had no political motivation or intent to mislead.” DM

Read KPMG's full statement here.

  • PAULI VAN WYK
    PAULI VAN WYK
  • SCORPIO

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