The audit giant, KPMG that is battling to restore public trust and rebuild image, has resolved to lay off about 400 in its South Africa’s operation as it pushes to enhance sustainable footing and douse confidence crisis among its several clients.
The latest shake-up follows a string of scandal that has dogged its operations in countries where it operates and saw it lose several accounts.
Last January in the United States, five of its operatives were arraigned in court and face lengthy jail terms of between 65 and 85 years if found guilty.
The trio of David Middendorf, KPMG’s former national managing partner for audit quality and professional practice, Thomas Whittle, KPMG’s former national partner in charge for inspections, and David Britt, KPMG’s former banking and capital markets group co-leader – were charged with conspiracy to defraud the US and conspiracy to commit wire fraud, as well as three counts of wire fraud.
The three top former KPMG US partners were accused of using leaked information about audit inspections to cheat the system. They could face up to 85 years in prison if they are found guilty.
Equally, their former colleague, Cynthia Holder, who worked at the US audit watchdog the Public Company Accounting Oversight Board (PCAOB) before joining KPMG, and former PCAOB inspector Jeffrey Wada face similar charges although only two counts of wire fraud. If found guilty, they could both be sent down for up to 65 years.
In the UK also, KPMG is under investigation by the Country’s Financial Reporting Council over the collapse of the Construction giant, Carillion, the bribery years of Rolls Royce and the scandal hit Cooperative bank.
Peter Meehan, lead partner on Carillion, Andrew Dougal, chairnan, audit committee Carillion and Richard Adam, an ex-KPMG staff and some top executives of Carillion are under scrutiny of the UK Audit regulator.
In South Africa also, the embattled KPMG South Africa suspended Sipho Malaba, an audit partner who leads one of its largest business units.
Malaba is part of the new leadership team of the Audit firm in South Africa, and was the lead audit partner on VBS Mutual Bank, which, according to a damning independent report, could not account for nearly R900m (£53m) deposited with it.
Most of KPMG South Africa’s senior management quit in September last year over its links with the Gupta family, who are under investigation following allegations of political corruption.
CEO Trevor Hoole, Chairman Ahmed Jaffer, COO Steven Louw and five other senior partners resigned after an internal report found it had missed warning signs in the audits of Gupta-controlled companies.
At the time, the firm conducted an internal investigation, which found no evidence of illegal behaviour or corruption by KPMG partners or staff, but it did unearth“work that fell considerably short of KPMG’s standards”.
It would be recalled that Ayo Othihiwa, KPMG Nigeria’s Audit partner on StanbicIBTC was also suspended in 2015 by the Nigeria’s Financial Reporting Council (FRC) for infractions discovered in the bank’s books.
The Council sanctioned both KPMG and Othihiwa for negligence on the infractions which include non-disclosure of certain business decisions involving huge amount of money in the bank’s financial statement.
The latest development in South Africa is a further blow to the troubled audit firm which is battling to save its image and improve public confidence in its work.
Nhlamulo Dlomu, the Chief Executive of KPMG South Africa, said Monday in Johannesburg that KPMG plans to have just four business hubs in Johannesburg, Cape Town, Durban and Port Elizabeth and close other regional offices.
“These hard decisions were necessary to put the firm on a more sustainable footing, while ensuring we continue to offer our clients the best service and support,” Dlomu said in a statement.
The auditor has taken a number of steps since last September to help restore its reputation, including changes to corporate governance and management, and measures to improve risk management.
The auditor’s South African unit has been under close scrutiny since 2017 over work done for a company owned by the Gupta family.
The firm has been accused of using its links to former president Jacob Zuma to influence government decisions and the awarding of tenders – and more recently for failing to disclose loans from small lender VBS Mutual Bank.
The Guptas and Zuma have denied any wrongdoing.
South Africa’s auditor-general said in April that he would terminate all government contracts with KPMG following the scandals, prompting Barclays Africa, one of KPMG’s biggest clients, to stop doing business with the company.
More than 12 other clients have cut ties with KPMG since 2017, and in May, South African micro lender Finbond became the latest firm to drop the auditor.
Dlomu said as part of plans to refocus the business, KPMG would appoint a number of senior KPMG partners from across its international network to the board and executive positions at its South African unit.
“Today’s announcement to embed additional senior international partners into the South African leadership team is evidence of the significant investment KPMG International is providing.
“This is to help ensure KPMG South Africa can continue to focus on trust, quality and integrity,” KPMG International Chairman Bill Thomas said.
The company said the South Africa office has more than 130 partners and 2,200 employees, adding that it would continue to offer a wide range of the core services that its global, regional and local clients require.
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