Wiseman Nkuhlu, former chairman of KPMG SA, has written a book based on his experience at the auditing firm.
His book, Enabler or Victim: KPMG SA and State Capture, captures the ideas and beliefs that influenced his actions during a specific stage of his time as chairman of the firm.
“The book has not been authorised, influenced or endorsed by KPMG SA. It is the product of a realisation that, because of the public interest in the KPMG SA crisis, I am duty-bound to provide my account,” Nkuhlu says.
Enabler or Victim: KPMG SA and State Capture
Author: Wiseman Nkuhlu
Publisher: KMM Review Publishing
The withdrawal of sections of the SA Revenue Service (Sars) report regarding “findings, conclusions and recommendations” was welcomed, but the predominant sentiment was that it was not enough. Many questioned the decision and struggled to understand why the whole report was not withdrawn. These were all serious questions the firm had to credibly deal with.
However, the most worrying issue was the continuing and deepening distrust of the firm. There was an almost unshakeable belief that the firm had not told the whole story that it was not being transparent about what actually happened. All of these issues were taking their toll on the firm and its staff during this period, especially after business leaders were outraged by KPMG SA’s conduct.
Being judged to be complicit in state capture and corruption was seen as betrayal of the business leaders’ campaign against state capture and corruption. As a consequence, Business Leadership SA (BLSA) suspended KPMG SA’s membership from the organisation with immediate effect, with a clear warning that if no satisfactory corrective actions were taken within six months the next step would be expulsion. This was a huge embarrassment to the firm, its partners and staff.
It took more than a year for BLSA to be convinced that KPMG SA had taken adequate steps to disassociate itself from a corrupt relationship with the Gupta family. This period would also see KPMG SA losing a number of clients and staff.With tensions running high, the trend had already started before the September 2017 statement. Managers were leaving in steadily increasing numbers, causing real concern to partners in audit and advisory. Some of the clients that would soon be lost included Sasfin, Hulisani and Sygnia Asset Management. Those clients that remained insisted that KPMG SA needed to resolve the Sars issue in particular.
The firm, even under new leadership, was having serious difficulties both within and externally. In the build-up to my start date, one of the key matters I reflected on pertained to the adequacy of actions taken by the firm. I had two primary questions in that respect. Firstly, were the actions adequate to address the underlying factors that allowed the failings to occur? Secondly, was implementation progressing fast enough?
These were the matters we had to interrogate as the new leadership of KPMG SA. The policy board had to provide leadership on this, but the challenge rested primarily with Ansie [Ramalho] and myself as the new independent non-executive directors who were specifically brought in to refresh thinking and ensure that the renewal measures were authentic and deep.
At this point, I had already accessed relevant literature on the matters under review. I had read cases of auditors implicated in unethical conduct in other jurisdictions, selected international standards on auditing as well as pronouncements by audit regulators on ethical conduct and audit quality. It was also important for us to invest a considerable amount of time in consultations with the regulators, especially the Independent Regulatory Board for Auditors (IRBA), the SA Reserve Bank, the JSE and the SA Institute of Chartered Accountants (Saica).
We spent February and the first three weeks in March 2018 listening and learning from a variety of stakeholders, including KPMG SA staff and partners, KPMG International representatives, clients, regulators, persons affected by the Sars report, political and economic analysts, civil society organisations working on anti corruption and ethics, as well as other concerned patriotic South Africans.
Right from the start of my tenure, I made it clear that there could be no healing and renewal without a complete and transparent account of what went wrong, warts and all.
I made a commitment that I would ensure complete cooperation and disclosure to all investigations, including with the IRBA, Saica and the Judicial Commission of Inquiry into Allegations of State Capture. We made the same commitment to the Nugent Inquiry on Sars when it was promulgated in May 2018.
In the spirit of independently and objectively verifying the facts, I arranged meetings with Iraj Abedian, who was one of the most vehement critics of KPMG SA and the audit profession as a whole. The purpose of the meetings was to better understand his outrage regarding KPMG SA’s conduct, to understand better the nature and extent of the firm’s involvement in unethical conduct, state capture and corruption, from his perspective. What was also of interest to me was his understanding of how KPMG SA contributed to the economic crisis facing South Africa.
The meetings were as difficult as I had imagined they would be. Abedian was candid and brutal in his assessment. He insisted that KPMG SA was corrupt and did not deserve the licence to conduct business in South Africa.
In his analysis, KPMG SA was clearly an active participant in the state capture network linked to former President Jacob Zuma. He asserted that the primary objective of the network was to redirect the resources of the state to serve the interests of the network and not, as was supposed to be the case, the people of South Africa.
He was angry with the firm and the profession because of what he viewed as a level of complicity completely at odds with the primary mandate of the profession. The cost to the country and its people was too high and that was unforgivable in his eyes.
In response to his views, I did not deny that there were ethical and conflict of interest issues that KPMG SA and the profession needed to address. Where we differed, however, was on his insistence that KPMG SA should be shut down. I made it clear that, in my view, firms and companies like KPMG SA have no mind or conscience of their own; that their consciences are those of their leaders at a given time, therefore,when they cause harm to society, it is their executives who should bear the consequences.
I argued that penalties should include extraction of capital accumulated by the firm or company through unethical business practices or blatant corruption that was driven or enabled by the leadership of the firm. It was important to me that he understood that, because the majority of employees in the firm were not involved in the decisions that harmed society, it made little sense and was not fair to punish them by closing down the firm.
Further, firms and companies of significance accumulate substantial amounts of intellectual capital in the form of unique practices, systems and networks that are an asset to society. Destroying these firms in haste because of highly emotional and reductionist arguments was short-sighted and could create an irrevocably more precarious set of circumstances for society.
My position was that it was more judicious to punish those in leadership positions for the conduct or actions that cause harm to society. Ultimately, and unsurprisingly, we agreed to disagree. I made it clear that I was not at KPMG SA to cover up or condone unethical conduct; that my role was to restore integrity and audit quality, and ensure that trust with the people of South Africa was restored.