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KPMG CEO: We should have bailed on Guptas sooner

Aug 11 2017 12:53

Cape Town - Audit firm KPMG should have stopped working for the Gupta companies sooner than it did, Trevor Hoole, CEO of KPMG SA, said on Friday.

"While the last audit opinions for the group were signed for the 28 February 2015 year end, it is now clear that based on publicly-available information, KPMG should have resigned earlier than March 2016 and should have stopped working for the Gupta companies sooner than we did," Hoole said in a statement.

"In my judgement, we were too slow to recognise the wider public interest related to these matters, given the existing socio-political environment in South Africa. We fully understand that our client acceptance and continuance procedures must be improved to take account of this fact."

He emphasised, however, that neither a KPMG review of Gupta-owned Linkway Trading (being investigated regarding allegations of laundering R30m in public funds to pay for a family wedding at Sun City), nor the broader review into professional services rendered to the wider Gupta group has, to date, found any evidence that KPMG in any way supported or condoned alleged tax evasion or money laundering, nor that there was any dishonesty by the teams.

The audit regulator announced in July that it was launching an investigation into global consultancy KPMG's audits of a company allegedly at the centre of the Gupta wedding scandal.

In a #GuptaLeaks expose it was revealed how the Free State provincial government largely picked up the tab for the “event of the millennium”, as it was described by KPMG Africa then-chief executive Moses Kgosana. He was a guest at the lavish affair. 

Hoole said in KPMG's statement that the company "fully understands" the criticism for the attendance at the Gupta family wedding in 2013 by four KPMG Partners.

"(We) accept that the partners should not have attended this wedding," said Hoole.

KPMG's board has deemed it appropriate in the meantime, pending the conclusion of KPMGI’s comprehensive review, to suspend the lead audit engagement partner. This is despite no evidence having been found to date of dishonesty on the part of this partner.
 
Two other partners who were connected to these matters will be relieved of their board and executive positions pending the outcome of the comprehensive reviews, and further actions will be taken as appropriate.
 
"Mistakes have been made and painful lessons learnt. We commit to take every action necessary to apply these learnings to strengthen the way we work, and help restore the public trust we have earned over more than a century of commitment to the highest professional and ethical standards and dedicated service to SA businesses, the capital market and the wider public interest," said Hoole.

'Robust review'

All aspects of auditing firm KPMG's work related to the Gupta Group is being "robustly reviewed", said Hoole. The review includes client acceptance, execution and the quality of the work.

"Where any problems or issues are found, those KPMG individuals responsible will be held accountable," Hoole said in a statement.

At the end of July this year, KPMG suffered its first apparent corporate casualty after financial technology firm Sygnia started preparations to dismiss the embattled firm as its auditors.

Sygnia founder and chief executive  Magda Wierzycka recommended to her board on July 27 that the company should end KPMG's services, following allegations of its involvement in state capture. Wierzycka made the decision after meeting with KPMG and not being satisfied with the action the audit firm is taking against the allegations levelled against it. 

"From the outset we have taken these allegations extremely seriously and the KPMG SA board immediately initiated a comprehensive review to establish the facts regarding the range of professional services we had delivered," Hoole said. 

KPMG SA has worked collaboratively with KPMG International (KPMGI) on the review so far.

"To re-enforce confidence in the rigour of the review, we have determined KPMGI will independently lead all aspects of the comprehensive review," said Hoole.

Accordingly, the review team is now being led by a senior partner from the KPMG network, reporting directly to KPMGI’s global vice chair of quality risk and regulatory, as well as to the SA board.

Norton Rose Fulbright as external legal counsel continues to provide independent, expert opinions.

'SARS Report'

Hoole said KPMG has noted criticism regarding the so-called "SARS Report". The state spent more than R23m for KPMG to investigate the South African Revenue Service’s so-called rogue unit. That investigation recommended that Pravin Gordhan be probed.  

The review being conducted by KPMG will, therefore, be extended to include KPMG’s role in this report.

"It is important to note that the engagement partner for the SARS project resigned from KPMG in March 2017. As with the review, all aspects of the engagement, including client acceptance, execution and the quality of the work will be considered," said Hoole.

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kpmg  |  financial services  |  gupta leaks  |  sa economy

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