{"id":238789,"date":"2018-04-18T07:37:57","date_gmt":"2018-04-18T05:37:57","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=238789"},"modified":"2018-04-18T07:37:57","modified_gmt":"2018-04-18T05:37:57","slug":"kpmg-south-african-unit-in-survival-mode","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/banking\/238789\/kpmg-south-african-unit-in-survival-mode\/","title":{"rendered":"KPMG South African unit in survival mode"},"content":{"rendered":"
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KPMG LLP\u2019s South African unit is flying in trouble shooters from around the globe and hurriedly meeting clients to stem any further loss of business after becoming embroiled in three evolving scandals.<\/p>\n

Over the past eight months, the auditor issued a public apology for work done for the politically connected Gupta family, withdrew the findings of a report about the country\u2019s tax authority, and interrogated staff who signed off on VBS Mutual Bank\u2019s accounts before it failed.<\/p>\n

In meetings over the weekend in Johannesburg, directors came up with three ways to convince its customers that the audit firm still deserves its fees. That didn\u2019t stop it losing one of its biggest clients on Tuesday, the government\u2019s Auditor-General.<\/p>\n

\u201cWe\u2019ve reached the breaking point,\u201d chairman Wiseman Nkuhlu told reporters on Sunday, before pledging to vet KPMG\u2019s more than 3,000 staff spread across two large buildings in central Johannesburg every two years for warning signs of malpractice.<\/p>\n

He\u2019s also called in international colleagues to help probe the quality of past audits and set up a hotline for employees to report corruption. \u201cOwning up to the fact that things are broken is very important,\u201d the 74-year-old said.<\/p>\n

KPMG South Africa\u2019s VBS crisis erupted when two of its partners resigned instead of facing disciplinary proceedings for not disclosing financial interests related to the bank.<\/p>\n

The company last year lost publicly traded clients including clothing retailer The Foschini Group Ltd. and financial services firm Sasfin Holdings Ltd.<\/p>\n

After the Auditor-General cut ties, KPMG can\u2019t afford to further risk its biggest business – the auditing of four of South Africa\u2019s six largest lenders.<\/p>\n

Standard Bank Group, Africa\u2019s largest lender by assets, is assessing the latest \u201cadverse information,\u201d a spokesman said, while Nedbank Group said it can\u2019t practically change auditors this year because parent company Old Mutual is splitting into four separate units.<\/p>\n

Barclays Africa Group Ltd. said its board will discuss KPMG\u2019s role in the collapse of VBS next month, and Investec Plc said it was scrutinizing an ongoing audit by KPMG into financials for the 2017 fiscal year.<\/p>\n

\u2018Temporary Break\u2019<\/strong><\/p>\n

KPMG didn\u2019t immediately respond to requests for comment on the banks\u2019 reaction.<\/p>\n

In a statement on losing the Auditor-General\u2019s contract on Tuesday, KPMG said the company is taking significant steps toward improvement and that it hopes \u201cit will prove to only be a temporary break in the relationship.\u201d<\/p>\n

While South African banks are required by regulators to have two auditors and there\u2019s a scarcity of alternative candidates, KPMG is \u201cfairly certain\u201d to lose more clients, said Iraj Abedian, the head of Pan-African Investments and Research Services, who has consulted with Nkuhlu about the auditor\u2019s strategy.<\/p>\n

The latest measures are not enough \u201cby a long shot,\u201d he said.<\/p>\n

VBS\u2019s administrator withdrew the bank\u2019s 2017 annual financial statements on Monday, saying they contained \u201c material mis-statements.\u201d<\/p>\n

That followed KPMG\u2019s admission last year that parts of a 2016 report on a so-called rogue unit at the country\u2019s tax authority \u201cshould no longer be relied upon.\u201d<\/p>\n

And an internal investigation into work done for Gupta-linked companies including Oakbay Resources and Energy found the auditor fell short of its own standards and eight senior executives quit.<\/p>\n

KPMG\u2019s woes aren\u2019t confined to South Africa. In August, the firm agreed to pay more than $6.2 million to resolve allegations that it didn\u2019t adequately audit US oil and gas company Miller Energy Resources Inc.<\/p>\n

Then this year, the UK Financial Reporting Council opened a probe into KPMG\u2019s audits of Carillion Plc, the builder that collapsed under a mountain of debt in January.<\/p>\n

Another consequence for KPMG South Africa has been a higher-than-normal rate of senior departures, according to chief executive officer Nhlamu Dlomu.<\/p>\n

Chief Economist and Partner Lullu Krugel has joined PricewaterhouseCoopers LLP\u2019s South African unit, alongside fellow economics specialists Christie Viljoen and Maura Feddersen.<\/p>\n

Investigations Abound<\/strong><\/p>\n

In South Africa, KPMG is facing three probes.<\/p>\n

The Independent Regulatory Board for Auditors and the South African Institute of Chartered Accountants are both investigating the company, while a commission of inquiry has been set up by the government to probe allegations that the Gupta family siphoned off state money and influenced ministerial appointments.<\/p>\n

The Guptas, who have left South Africa, have denied wrongdoing. But for KPMG, sanctions could range from fines to being forced to close down.<\/p>\n

\u201cKPMG still believes its problems are such that it can manage by adding layers of \u2018new measures\u2019 and \u2018new promises\u2019 on top of a broken organizational culture and operational codes of behavior,\u201d Abedian said.<\/p>\n

KPMG needs to set up an independent team of people who aren\u2019t linked to the company to probe \u201cwhat went wrong, why it happened, and put out a public report irrespective of the consequences,\u201d he said.<\/p>\n

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Read: Could KPMG still discipline the VBS auditors even though they\u2019ve resigned?<\/a><\/strong><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

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