KPMG South Africa has published its first integrated report in a bid to win back the country’s trust amid scandals that crushed its credibility over the last two years.
In 2017 and 2018 KPMG was hit by three major scandals:
- It confessed to publishing a misleading report on the South African Revenue Service that led to a police probe of a former finance minister;
- It did work for the Gupta family who have been implicated in corruption scandals linked to former president Jacob Zuma; and
- The firm acted as an auditor for VBS which subsequently collapsed due to massive fraud.
The fallout from the scandals was immense, with eight of its top staff resigning, some of the biggest companies in South Africa dropping the group as their auditor, and about a third of its workforce being let go – shrinking to 2,200 employees from 3,400.
KPMG South Africa has been spending the bulk of its time over the period plugging holes in its business practices that were identified through internal investigations into the scandals, and trying to restructure and reform its business to prevent similar scandals from striking again.
It has also been trying to mend its relationship with the business community and the South African public at large, apologising for the scandals, and paying back over R70 million that it earned from the work it did for the companies involved.
After almost two years of reform, KPMG has now published an integrated report containing a review of its business, as well as the action taken – and action still to be taken – restructure its operations in South Africa.
Broadly, KPMG highlighted the following five major changes as part of the process:
- Reforms to governance and leadership – including the introduction of independent non-executive members to the board and enhanced board oversight of the key areas of quality and risk. In May 2019 newly-appointed CEO, Ignatius Sehoole, will take the helm.
- Changes to who the company works with – the group re-evaluated its client portfolio and exited relationships which do not align with its new risk assessment criteria or business model going forward. It has also adopted more rigorous procedures for new client acceptance.
- Establishing a Public Interest, Social and Ethics Committee – this was adopted in early 2018 to ensure that ethics and the public interest remain at the top of the agenda.The Committee will be chaired by an independent party, with Ansie Ramalho fulfilling the role.
- Donating funds – R47.8-million in fees from work on Gupta-related entities are being donated to Education and Anti-corruption initiatives and organisations, on top of the R20 million returned for the SARS work. The group said it is also focusing its long-term corporate citizenship strategy on SMME Development, Pro Bono Services and Employee Volunteerism.
- Improving audit quality – audit quality is the single most important priority for the firm, it said. “We are implementing our Audit Quality Plan which will bring about significant improvements in audit quality”.
What KPMG pays its partners
As part of the report, KPMG also said it will tie partner remuneration to the group’s new ideals – on top of value creation and financial performance.
“The remuneration model rewards performance that reflects an individual’s contribution to medium and long-term value creation, as well as short-term or current year performance against his or her goals.
“We aim to pay market-leading total reward when an individual’s performance, along with the firm’s performance, exceeds expectations,” it said.
Currently, average total earnings (before tax) for KPMG partners in office at 30 September 2018 amounted to R3.7 million per annum.
Average partner earnings for executive management, excluding the independent non-executive lead director, Chairman and KPMG partners from outside South Africa, amounted to R4.3 million per annum.
“The differential pertains to the relative leadership attributes, responsibilities and experience of the executive management team,” it said.