15 September 2017

South Africa: Top Global Audit Firm Cleans Out Its South African Stables

Photo: KPMG
Nhlamu Dlomu, KPMG's new South African CEO: “My first order of business will be to build a management team committed ... ethics and integrity... My pledge and promise to the country is that we can and will regain the public’s confidence.”

Cape Town — The scandal over the “capture” of the South African state by President Jacob Zuma's friends, the Gupta family, has swept aside the South African leadership of one of the world's “big four” audit and management consultancy firms.

KPMG International, accused of facilitating the Gupta business family's irregular seizure of billions of rands worth of government contracts and drawing up a report which fuelled factional infighting in the government and the ruling African National Congress,  announced sweeping changes to its South African branch.

The company said a probe by the international parent company “did not identify any evidence of illegal behaviour or corruption by KPMG partners or staff.” But it “did find work that fell considerably short of KPMG’s standards.”

As a consequence:

- Top leaders of the South African company are stepping down, including the chairman, the chief executive officer and the chief operating officer, and five partners have resigned;

- KPMG South Africa will take disciplinary action against the lead partner who handled audits of certain Gupta companies;

- The company has offered to refund to the South African government R23 million ($1.7 million) which it charged for a sub-standard investigative report on the South African Revenue Service which was used in efforts to discredit the former finance minister, Pravin Gordhan, who was subsequently fired by Zuma; and

- KPMG South Africa will also donate R40 million ($3 million) - the total fees earned from Gupta entities since 2002 - to education and anti-corruption NGOs.

In other findings, KPMG International said its South African company “failed to apply sufficient professional scepticism” in auditing a Gupta firm which in effect laundered money from a provincial government to pay for a huge and elaborate Gupta family wedding at the gaudy Sun City resort. KPMG also said it was wrong for four partners to attend the wedding.

In addition the KPMG probe found the company did not deal adequately with “information which called into question the integrity of the Guptas” while it was advising on a deal in which the Guptas bought a coal mine from the Anglo–Swiss multinational, Glencore.

Evidence suggests that the country's public power generator, Eskom, and Zuma's mining minister collaborated with the Guptas to drive down the price of the mine and force its sale to the family.

In a finding dealing more broadly with KPMG's interaction with the Guptas, the company added:

“The investigation found that there were certain red flags that came to KPMG South Africa’s attention regarding the integrity and ethics of the Guptas that were not appropriately considered and addressed at that time. Had one or more of those red flags been heeded, KPMG South Africa would have stopped working for the Guptas earlier.”

President Zuma visits the Guptas at their estate in Johannesburg's northern suburbs and has defended his friendship with them in Parliament. South African politicians have said the Guptas offered them Cabinet positions, and one of Zuma's sons, Duduzane Zuma, is in business with them.

KPMG has appointed its Johannesburg-educated human resources specialist, Nhlamu Dlomu, as its new South African CEO.

The company described her as “a highly experienced partner with extensive client experience leading significant transformation in the financial services and other industry sectors in South Africa and overseas."

She has vowed to clean up the company's image in South Africa. “My pledge and promise to the country is that we can and will regain the public’s confidence,” she said in a KPMG statement.

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