'Rogue unit' retraction: 5 questions answered

Finance Minister Pravin Gordhan. (File, AFP)
Finance Minister Pravin Gordhan. (File, AFP)

On Monday SARS boss Tom Moyane said they would sue KPMG after the auditing firm withdrew the conclusions of its report on the so-called "rogue unit" at SARS. If you are in the dark about the controversy surrounding SARS and the KPMG report, read here:

What is the KPMG/SARS report?

In 2014, newly appointed SARS Commissionar Tom Moyane hired KPMG South Africa to conduct a forensic investigation into an intelligence unit within the revenue service that between 2010 and 2014 had started investigating high-profile tax offenders, which included the finances of prominent politicians and politically-connected business people. 

The report KPMG produced suggested that the unit was breaking the law by using illegal methods and was therefore “rogue in nature”. It also suggested Gordhan, as SARS commissioner at the time, was aware of the unit’s alleged illegal activities. Then deputy commissioner of SARS Ivan Pillay, head of investigations Johann van Loggerenberg and others were suspended as a result, and criminal charges were eventually also laid against Gordhan. The report was instrumental in removing him from his position as finance minister.

Why is it so controversial?

Prior to the publication of the KPMG report, on 9 November 2014 the Sunday Times published a front page story about the alleged “rogue unit” that claimed it ran a brothel and spied on President Jacob Zuma and other ANC heavyweights. The story had massive repercussions, locking Gordhan and Moyane in a political battle that is still ongoing, and undoing the work that the original intelligence unit, called the National Research Group (NRG), did to recover millions of evaded taxes and exposing corruption.

Some 50 senior SARS officials quit in the fallout, causing a massive ‘brain drain’ at the revenue service. In April 2016 the Sunday Times finally admitted that its report contained several factual errors and omissions.

Why did KPMG withdraw the report?

In a statement last week KPMG South Africa said after a “comprehensive investigation” they decided to withdraw the conclusions, recommendations and legal opinions of their report on the "rogue unit" as these didn’t meet the required standard of their work. It also said the notion that Gordhan knew of the rogue nature of the unit was a misinterpretation of the facts. They apologised for the ‘misunderstanding’.

Why is SARS unhappy about this?

Moyane held a press conference on Monday to say that SARS will be suing KPMG amongst other things for reputational damage caused by the withdrawal of the report. Moyane said the intellectual property rights of the report KPMG compiled belonged to SARS and the auditing firm therefore had no right to withdraw any part of it.

Moyane also said disciplinary proceedings against Pillay and others linked to the ‘rogue unit’ were not instituted as a result of the KPMG report, but rather the findings of other, internal investigations.  

How did all of this come to light?

KPMG’s work came under the spotlight after it was revealed in #GuptaLeaks emails that their auditors had ‘overlooked’ how R30m earmarked for a Free State’s dairy project was used to pay for the lavish Gupta wedding at Sun City in 2013.

A Gupta company Linkway Trading (Pty) Ltd listed the wedding as a “business expense” and KPMG overlooked it. This despite the junior auditor working with Linkway’s financial statements writing to a senior partner, “We are of the opinion that these [wedding-related] costs are most probably not in the production of Linkway’s income.” 

In a statement last week KPMG admitted the audit of Linkway “fell well short of the quality expected”.

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