Global auditing firm KPMG has for the past few days come under scrutiny for work on behalf of South African companies linked to the politically connected Gupta family.
These are the reasons why KPMG is in so much trouble in South Africa
KPMG has recently come under scrutiny for work on behalf of South African companies linked to the politically connected Gupta family.
The scandal has revolved around members of the wealthy family, who are friends of President Jacob Zuma and have been accused of looting billions of rand in taxpayer funds and exerting undue influence over the state.
The damning findings have seen senior staff at the audit firm such as chief executive of KPMG South Africa, Trevor Hoole, its chairman, Ahmed Jaffer, chief operating officer Steven Louw and five senior partners all resign.
Former finance minister, Pravin Gordhan, who was fingered by KPMG in the South African Revenue Service (Sars)report, has issued a stern rebuke on the firm and saying he would be seeking legal advice in the matter. The report implied that Gordhan had helped set up a "rogue spy unit" when he was head of the service.
It became the third global firm to be damaged by work carried out for the Indian-born brothers, after public relations agency Bell Pottinger – whose British business collapsed this week – and consultancy McKinsey.
KPMG's investigation into its work for the Guptas, accused by a public watchdog of improperly influencing government contracts, identified no evidence of crimes or corruption, but found that work done for Gupta family firms "fell considerably short of KPMG's standards", the auditor said in a statement.
KPMG reportedly failed to act when businesses controlled by the Gupta family diverted public money to pay for a wedding, according to the AmaBhungane Centre for Investigative Journalism and Tiso Blackstar Group’s Sunday Times, citing emails known as the Gupta Leaks.
This saw the firm take an unprecedented step of letting go of its chief executive, chief operating officer, board chairperson and six other partners.
Both Zuma and the Guptas deny wrongdoing and say they are victims of a politically motivated witch-hunt. The Guptas and their companies have not been charged with any crime, but the scandal is one of many that have dogged the Zuma presidency.
Pravin Gordhan, who was ousted from his post as South Africa’s finance minister in March, slammed KPMG after it withdrew a report on the country’s tax agency that was used as evidence in a police probe against him and led to the removal of senior staff.
KPMG acknowledged "flaws" in the report that it compiled for South Africa's tax service, which implied that Gordhan had helped set up a "rogue spy unit" when he was head of the service.
Gordhan, subsequently sacked as finance minister by Zuma, said the report had damaged South Africa's young democracy, and that he was considering legal steps.
Besides KPMG LLP, public relations firm Bell Pottinger LLP, consultancy McKinsey & Co. and software company SAP SE are also among the companies that have been implicated in facilitating, being party to or turning a blind eye to their deals.
“I don’t think the US Department of Justice would take the accusations about KPMG or McKinsey lightly,” Magda Wierzycka, chief executive officer of Sygnia Ltd, a Cape Town-based money manager that has terminated KPMG’s services.
“Companies in the country will stop using McKinsey if it had to be fined, while KPMG’s South African business would be “in trouble” if one large corporation had to fire it,” she added.
SAP is said to have agreed to pay commission to a firm in which Zuma’s son has an indirect stake for help in winning contracts.
McKinsey is being investigated by South Africa’s parliament over whether it knowingly let funds from state power utility Eskom be diverted to a Gupta company as a way of securing a $78 million contract to advise Eskom.
Barclays Group Africa is among a host of clients that have reviewed its relationship with KPMG With reports emerging that the lender could consider ending its relationship with the audit firm.
The Institute of Directors in Southern Africa has suspended co-branded activities with KPMG, including sponsorship of its golf day, while Cape Town-based Sygnia Asset Management fired the audit firm. Other clients of KPMG’s include Old Mutual Plc, Africa’s biggest insurer, and Standard Bank Group, Africa’s biggest bank by assets.
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