South African unit of global auditing firm KPMG on Sunday announced plans to open its doors to a review of its makeover plan by the Independent Regulatory Board for Auditors (IRBA), after admitting that its failings have given a negative reputation to auditors.
An unusual step has been taken to appoint a specialized team to review KPMG’s turnaround strategy starting this week, the IRBA said on Friday.
“We acknowledge that failings at the firm have contributed to adverse perceptions about the audit profession and we accept responsibility to work towards redressing this situation,” KPMG said in a statement, adding that it welcomed the review.
The financial services firm has been losing clients after it announced a major shakeup in leadership following an internal investigation of its practices while involved with companies linked to the Guptas. The Guptas have been accused of using their friendship with South Africa’s former President Jacob Zuma to win government contracts. Zuma and the Guptas have denied any wrongdoing, and the accusations are part of judicial inquiry into “state capture”.
KPMG said its investigation found no evidence of corruption or illegal behavior but identified “work that fell considerably short of KPMG’s standards.” This led to the resignation of the multinational audit firm’s COO and risk management partner Steven Louw, as well as CEO Trevor Hoole, who was replaced by Nhlamu Dlomu, the company’s former Head for People and Change. In January, the firm appointed veteran public servant and former chairman of the Development Bank of Southern Africa Wiseman Nkuhlu as its chairman.
Adding to its record of scandals is the recent resignation of two of its senior partners who faced disciplinary charges for concealing financial interest in connection to VBS Mutual Bank. It would be recalled that VBS Mutual Bank was placed under curatorship in March by South African Reserve Bank over liquidity issues, because the lender was unable to repay some of its clients’ deposits. KPMG explained that the bank’s curatorship brought to light information linked to the partners, which incited KPMG’s decision to carry out an independent investigation that is still ongoing.
Commenting on how the recent scandal affected its relationship with clients, KPMG said “Recent revelations about VBS have unsettled clients and we recognize they require reassurance that KPMG remains a good firm to be associated with.”
The VBS bank scandal had a swift impact on the firm’s client portfolio. South African government banned the global audit firm from auditing public institutions in South Africa. Barclays Africa Group, one of KPMG’s major financial customers and South Africa’s No.2 lender by market value also dropped the auditor. And now Sibanye-Stillwater is the latest amongst major clients who have dropped KPMG’s scandal-hit South African arm as auditor.