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Johannesburg - KPMG suffered its first apparent corporate casualty after financial technology firm Sygnia started preparations to axe the embattled firm as its auditors.
Sygnia founder and chief executive Magda Wierzycka recommended to her board on Thursday that the company should end KPMG's services, following allegations of its involvement in state capture. Wierzycka made the decision after meeting with KPMG on Tuesday and not being satisfied with the action the audit firm is taking.
"Examples need to be made of companies implicated in plunder," Wierzycka told Fin24. "People are motivated by fear and greed. And if the bottom line of a company is affected, they will think twice about their actions."
The fiery CEO's action has raised the stakes against KPMG in South Africa, with the company's ties to the controversial family now costing it as least one lucrative client. It also remains unclear whether KPMG International will sanction its South African office. So far, the international office has referred all queries back to KPMG South Africa.
KPMG chief executive Trevor Hoole said the auditing firm is disappointed with Sygnia's decision.
"During the meeting I firmly reiterated our commitment to fully cooperating with the Independent Regulatory Board for Auditors (IRBA) investigation, and to ensuring that the firm continues to uphold our values at all times."
He said the firm took recent allegations seriously.
"Given recent allegations and new information which has come to light, a comprehensive internal review is under way, supervised by our board with guidance from external legal counsel," he said. "On completion of our review, KPMG will, within legal parameters, provide comment on allegations and take appropriate action."
Hoole said KPMG is committed to applying all learnings from this review to strengthen its internal processes.
The loss of Sygnia could be significant for KPMG. The fast growing financial services provider, worth R1.4bn, reported a 1.89% increase in total assets under management. Sygnia manages around R162bn worth of assets, which is steadily increasing
"We are not the biggest KPMG client, although we are probably the most vocal," she shrugged."We have to make the hard decisions now to affect change."
Wierzycka said the #GuptaLeaks sparked questions on how private companies facilitated the plunder the emails revealed.
'KPMG the Guptas' lapdog'
At the end of June an exclusive #GuptaLeaks story by amaBhungane and Scorpio reported that the “KPMG's dealings with the Guptas leave the impression that the auditor was the family’s lapdog”. Email correspondence in their possession shows that KPMG was well aware of many of the key details surrounding Gupta family wedding at Sun City.
The controversial family's Linkway Trading received cash from the government to invest in the Estina dairy project in the Free State, but instead the funds were diverted to cover the expense of a Gupta niece's luxury three-day family wedding
KPMG has been widely criticised for not probing the R30m payment used to fund the wedding more thoroughly.
Former KPMG chief executive Moses Kgosana attended the Sun City wedding. Kgosana had to resign from his post at Alexander Forbes Africa after emails surfaced which showed he was due to become Alexander Forbes’s chairperson at the end of August.
"My first question was how a small company such as Linkway had auditors that did not pick up that something was awry, when such a small internal company suddenly received such an inflow of funds to the tune of R30m," Wierzycka said. "And of course, no questions are asked."
Her second question grew out of the listing of Oakbay, with reports emerging that the price was fixed artificially.
"Again KPMG were auditors of that listing. The evaluation of that listing was subsequently used to convert an IDC loan into a shareholding for an artificially overvalued company. So again South African companies were defrauded."
More red lights flickered for Wierzycka after she also learned about the audit for the South African Revenue Service on the so-called rogue unit, which implicated former finance minister Pravin Gordhan. Critics questioned the terms of reference of that reporter and also highlighted that those implicated were not given a proper chance to respond.
"All these points added up. And those were the questions I posed to KPMG in the meeting," she said.
Tuesday's meeting with KPMG was a "difficult conversation", but Wierzyck said she was not satisfied by the answers and assurances that the auditor firm gave her.
"I appreciate that investigations are taking place," she said. "But if this was my company implicated I would have been working through the night to find out what has happened, what went wrong."
KPMG's Hoole said KPMG did not have any knowledge of the Free State dairy project or Estina. "We were not the auditors to these entities."
He said KPMG took the decision to resign as the auditors for the Oakbay Group in March 2016, because of the firm's concern around the association risk with Oakbay. "Not because we had found issues during the course of the audit which were reportable at that time to IRBA."
Wierzyck said KPMG was the least of the corporates implicated in state capture so far.
"They just looked the other way. Other companies took bribes. Those companies should be punished severely."
Wierzyck has become quite vocal about corporate corruption over the last year.
Before she took on KPMG, she also rasied concerns with prominent private asset manager Allan Gray about its lack of action against social grants distributor Net1, a a company in its portfolio.
READ: Allan Gray: We didn’t buy Net1 to profit from Sassa crisis
Net 1 was at the centre of a drama around social grants with the South African Social Security Agency that threatened to disrupt payments to dependant South Africans.
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