18 September 2017

South Africa: Moyane Lambastes KPMG, SARS to Take Legal Action

Photo: KPMG/Wikipedia
KPMG logo

The South African Revenue Service (SARS) will be taking legal action against audit firm KPMG, Commissioner Tom Moyane said on Monday.

Speaking at a press briefing, following KPMG's decision to retract parts of its report on the "rogue unit", Moyane called the firm's actions a "dismal attempt" to portray the tax authority and its leadership as incompetent, corrupt inefficient and engaged in a witch-hunt.

On Friday KPMG released a report based on an internal investigation, where it said that failure on its part to "appropriately apply" its own risk management and quality controls, part of the report referring to conclusions, recommendations and legal opinions can no longer be relied on.

Moyane said that SARS was "taken aback" by the "aberrant and unethical" conduct of KPMG. SARS is taking legal action against KPMG, for reputational damage to the tax authority. SARS will report KPMG to the relevant statutory bodies, locally and international. SARS will also report KPMG to the minister of finance to consider stopping all work performed by KPMG.

SARS intends to have all work KPMG is performing for it stopped, and SARS will evaluate the work it did in the past 10 years to see if the tax authority has received value for money.

KPMG will also be reported to Parliament through the Standing Committee on Public Accounts (Scopa) and the Standing Committee on Finance (SCOF), to investigate the "immoral conduct" of KPMG and determine appropriate action.

During a question and answer session Moyane said that he found it strange KPMG would decide to retract parts of a report that was final, a year and a half later. "We find it completely disingenuous and unethical," he said.

"It borders on giving us a sense that the organisation has failed to conduct its activity despite the terms and conditions for which this work given to us, in good faith."

Moyane said he has on record receiving the final report in 2016, with a letter from the former CEO indicating that it was the final report, implying that the quality assurance was done.

"A year later and to say the contents cannot be relied upon borders on creating a perception to the public that SARS is not an organisation you can trust and casts aspersion to the leadership thereof."

He also said it was strange seven executives had resigned based on one report, and added that it brings into question the quality assurance of all the reports under their leadership.

Moyane also picked at the fact that no sooner had SARS received an email from KPMG's legal representatives Norton Rose Fulbright, had the firm gone public with its decision to retract parts of the report. This was done without giving the client, SARS, the opportunity to respond on the matter.

Moyane said that in the history of being KPMG's clients the tax authority had never considered interdicting any of their work, given the reputation of the organisation which SARS felt would be accountable and conduct work professionally.

"KPMG should be held accountable. KPMG must be accountable for all the things they have written to us which we have confirmed and accepted as a final report to us.

"This thing did not happen overnight ... they knew about it. They should have come to us earlier," he said.

Rogue unit report not flawed

"I want to say the report by KPMG is not flawed. In fact the report confirms conclusively, deeply so that there is prima facie wrong doing in this organisation. There were people involved in serious problems not tax related," said Moyane.

The report showed that the finding by the Sikhakhane Commission was the tip of the iceberg.

Refiloe Mokoena, chief officer of legal counsel unpacked the legal steps SARS is considering. She pointed out that SARS had entered into a service-level agreement with KPMG to which both parties have obligations. if it is found that KPMG has infringed upon SARS' intellectual property rights then SARS will consider the extent and nature of legal remedies to take, if any.

Mopyane explained that once the final report had been submitted to SARS, then KPMG waived all moral rights conferred to the author and these rights belong to SARS. Mokoena said that SARS would also be seeking legal opinion on the status of the report, as the entire report had not been withdrawn but only parts relating to the conclusions and recommendations.

Mokoena said that SARS has not had time to consult with its legal team, but would do so imminently.

The damage done cannot be quantified, she said, But the organisation has suffered reputational harm and breach of the service-level agreement.

Fin24

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