KPMG’s tangled web of deceit

KPMG was commissioned by Sars in December 2014 to perform an investigation which resulted in ‘Allegations of Irregularities and Misconduct’, (the report). Allegations from this unpublished report hit the news in October 2015 with the vengeance of a tornado – leaving a trail of destruction, mayhem and toxic debris in its wake. But like a tornado, one could observe the impact, but not the inner workings.

Within Sars, the report sowed confusion and disbelief on what was rumoured to be contained in the report. KPMG was a respected firm of auditors. It must be true? But surely, it couldn’t be. Staff battled to concentrate. Many staff at Sars work for the higher purpose, a moral value Pravin Gordhan lived and espoused, and drummed into them during his tenure.

But the ill winds blowing were palpable, lingering and fermenting. There was an ominous sense of foreboding. And then heads began to roll….

The chain reaction from the report continued unabated. But no one had the report. Apart from rumours, there was nothing tangible to respond to.

The report apparently gave credence to the existence of “a covert and rogue intelligence unit” operating within Sars. Johan van Loggerenberg’s book Rogue – The inside story of Sars’ elite crime busting unit, published in 2016, made references to excerpts from the report. Even though Van Loggerenberg appeared in the report, he had never been given a copy.

According to Van Loggerenberg, the initial brief to KPMG was, “to look further into the detail surrounding the establishment of the unit”. Whether or not such a brief falls within the competency of a firm of auditors, and whether or not such a brief can fall within the oversight roles of Saica and Irba, will be the subject of another article. And how would the resulting report conform to the standards of ethics laid down by Saica, Irba (the Independent Regulatory Board for Auditors) and the international bodies of accountants and auditors?

Van Loggerenberg, referring to a meeting held with Van der Walt, the forensic auditor of KPMG, states: “No allegations were put to me to answer or respond to”. Van Loggerenberg summarises his views on the report as follows: “The report contains sweeping statements, is factually incorrect and there is little or no substantiating evidence in too many instances to mention here”.

Was KPMG not concerned by Van Loggerenberg’s allegation of factual inaccuracies? Or of a Sars brief to KPMG that would destroy any notions of audit independence? Which begs the question – did KPMG intend to destroy Gordhan? Or was KPMG acting on the instructions of someone who wished to destroy Gordhan? Were Irba and Saica perhaps concerned that KPMG was not acting with objectivity, professional competence, due care, and integrity? Did the scurrilous attack on the integrity of an internationally respected finance minister not raise a warning flag? Would this not cause untold damage to the country as well as to foreign direct investment?

Did Irba and Saica consider why KPMG were chosen to carry out such an investigation? When the rumours regarding the report hit the news with an explosive fallout, why did KPMG then not try to curtail the damage?

The report was used to pull down Gordhan. It not only recommended that Gordhan be probed in connection with the alleged rogue unit, but accused Gordhan of irregularly extending [former deputy Sars’ commissioner] Ivan Pillay’s contract. We now know that this unfounded allegation has been completely blown out of the water by Vlok Symmington’s legal opinion written in 2009, not uncovered in KPMG’S forensic investigation. A forensic auditor may not be skilled in language nor capable of legal findings, but one would have expected a forensic auditor to have at least uncovered that crucial piece of evidence.

KPMG has now withdrawn its report, more than two years later. Too little, too late. It has not admitted wrongdoing, it merely “did not identify any evidence of illegal behaviour or corruption by KPMG partners or staff”, and admitted that the work “fell considerably short of KPMG’s standards”. As if one were referring to a disappointing restaurant. This does not absolve KPMG. They should not be comforted by the fact that they claim to not be guilty of criminal or illegal behaviour.

Their close relationship with the Gupta companies from 2002 raises many discomforting questions. Who recommended KPMG to Sars commissioner Tom Moyane? What was the basis for giving such a brief to KPMG? Was KPMG instructed as to how the investigation would take place, and what the conclusion should be?

How can KPMG explain its findings and recommendations? Did the report have malicious intent? Was it slanderous? Did it create falsehoods? Did it cause reputational damage? Did it result in the destruction of careers and livelihoods? Did it result in pecuniary damage? Can KPMG be sued by victims for the loss of income, and the loss resulting from having to resign from the Government Pension Fund?

Should KPMG pick up the litigation costs of those ex-members of Sars who are still embroiled in litigation? Is KPMG responsible for the loss to the fiscus resulting from the loss of senior skilled staff? Did KPMG have a hand to play in the continual internal restructuring of staff and operations, from which Sars may never recover? Did KPMG hammer the final nail into the coffin in which Sars has been captured?

In KPMG’s recent statement, they divulge that “this mandate was extended to the provision of a report which included conclusions, recommendations and legal opinions”. My suspicion is that Sars, realising the possible damaging ramifications of the KPMG report, tried to prevent the report from being published, or given to any other party, by making it subject to legal privilege. Did Sars realise that the report might boomerang and damage them? Who were they belatedly trying to protect?

KPMG appears to be very concerned with its own reputational damage, and has thrown some sacrificial lambs under the proverbial bus to attempt to wash the tarnish from its brand. It does not see the steadily advancing storm, gaining strength by the day. Ultimately, it will be required to reveal the initial brief, the engagement letter, and the report. This documentation may yet become the final noose around KPMG’s neck.

And who will fall with them?

Disclaimer

I refer to KPMG in this article, meaning KPMG as a whole. Regardless of whether it tries to differentiate between various “income drivers” under Audit, Tax and Advisory services, or separate international “partnerships”, or companies established in various countries. All these entities operate under the global brand of KPMG.

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