Auditor general explains why he 'didn't pull plug' on KPMG

Cape Town – The office of the auditor general decided not to pull the plug completely on KPMG as one of its partners in public sector auditing, pending an independent investigation into the firm’s conduct.

Kimi Makwetu, auditor general, told members of Parliament on Thursday that his office engaged with the leadership of KPMG SA when reports of the firm’s lack of quality controls and independence first surfaced.

KPMG CEO Nhlamu Dlomu, KPMG SA head of public sector Modise Maseng, and the interim chair of the auditor's policy board Gary Pickering appeared before the standing committee on public accounts to explain the work it did for the Gupta family and the South African Revenue Service (SARS) in relation to the so-called “rogue unit”.

Makwetu said towards the end of the Scopa hearing that KPMG’s public admission about the fact that its work fell short of auditing standards caught his office off guard.

“But we look at an auditing firm’s independence and professionalism as a whole and we believe it’s too early to get a comprehensive answer (as to whether KPMG falls short of these qualities).

KPMG’s leadership assured Makwetu these two elements are intact and his office has therefore decided until such time of the outcome of investigations it would rather allocate less work to KPMG instead of pulling the plug completely.  

“We will allocate work to KPMG over a one-year period, instead of two, subject to the conclusion of the investigations,” Makwetu said.

He also told members of Parliament that the KPMG matter reminds him of the final report into the Masterbond Group which was produced in 2001.

“I urge members to look at this report, as similar sentiments have been expressed. South Africa has been here before,” he said.

The Masterbond investigation revealed among other things that there had been dishonesty, a lack of professional integrity and independence from some of the auditors and that auditors were more involved than assisting and protecting the management of the said company than with professionalism in the auditing industry.

Makwetu said a number of statements have been made with regard to KPMG’s auditing work (relating to Gupta-linked families and the South African Revenue Service “rogue unit” report).”

“We’re assessing if the basic fundamentals are still present at KPMG. Is there evidence of a systemic breakdown? Until that is answered, we’d rather opt to say, ‘We give you less work in the meantime, but come back  and tell us what the outcome of the investigation is'.”

Scopa chairperson Themba Godi concluded the meeting by calling on KPMG to assure the public that there are no systemic problems within the auditing firm.

He also scolded the auditing firm for the manner in which it dealt with the findings of the SARS report, by retracting its conclusions publicly before speaking to SARS on the matter.

“If I look at your conduct with the SARS issue I wonder how you engage your client when you’ve found something wrong with it. You issued a press statement and then you call SARS and say, ‘Let’s engage’. It sounds cloak and dagger.

“You said there was urgency (to retract the findings). But why? It’s all part of a political game you’re playing. It seems like this is good old politics.” 

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