03 May

Absa Dumps KPMG South Africa in Blow to Auditor’s Survival

Barclays Africa Group Ltd. ditched KPMG LLP South Africa as one of its two auditors, the first major local bank to do so, in another blow to the embattled accounting firm’s hopes of survival in the country.

The decision may pressure other lenders into following suit less than a month after KPMG South Africa lost one of its biggest contracts when the government’s Auditor-General terminated its services.

KPMG has been tainted for work done for the Gupta family, who are being probed for using their friendship with former President Jacob Zuma to win state contracts and influence cabinets appointments, which they deny.

“It’s not the first time a company has dropped them and I suspect it won’t the last time,” said Wayne McCurrie, a money manager at Ashburton Investments Management Co.

“There’s going to be some job losses because KPMG has lost so many clients and they are probably going to lose more. They aren’t getting new clients.”

Johannesburg-based KPMG — which audits four of South Africa’s six biggest lenders, including Barclays Africa — last year lost publicly traded clients including clothing retailer The Foschini Group Ltd., financial services firm Sasfin Holdings Ltd. and consumer-goods distributor AVI Ltd. KPMG South Africa employs 3,400, according to the Johannesburg-based Business Times newspaper.

Barclays Africa’s board “is no longer able to support the reappointment of KPMG,” the lender, which is changing its name to Absa Group Ltd., said in a statement on Thursday.

The contract will cease once all regulatory steps associated with the 2017 audit have been completed by the end of this month, it said, adding KPMG Inc. and KPMG International had supported the local firm’s work.

During the past nine months, KPMG South Africa has issued a public apology for work done for the Gupta family, withdrawn the findings of a report about the country’s tax authority, and interrogated staff who signed off on VBS Mutual Bank’s accounts before it failed.

To read the full article, click here. 

27 Apr

From Defaults to Poor Data, Cocoa Audit Shows Top Grower’s Woes

Ivory Coast’s cocoa regulator failed to prevent a crisis that sent prices plummeting last season, according to an audit of the world’s top producer by KPMG LLP.

Offering a rare glimpse into the workings of an opaque industry, KPMG shows how flaws in the West African nation’s sales system had a “catalyst effect” on the industry’s woes, according to a copy of the audit commissioned by the government and obtained by Bloomberg.

The crisis cost the country at least 185 billion CFA Francs ($333 million) in lost income, KPMG said. While reforms of the sector in 2012 were supposed to protect cocoa farmers from global swings, the last annual season that ended in September showed producers remained vulnerable.

Prices started tumbling amid forecasts for an oversupply, triggering a wave of defaults by local exporters which couldn’t fulfil their contracts because they had bet on higher prices.

A slow response from Ivory Coast deepened the rout and resulted in farmer pay being cut by more than a third.

KPMG and Yves Brahima Kone, head of the regulator known as Le Conseil du Cafe-Cacao, declined to comment.

These are the report’s main findings and recommendations:

1. Defaults

After prices reached a six-year high in July 2016, local shippers who speculated on further gains were caught wrong-footed.

The audit showed 32 exporters defaulted on 222,302 metric tons of cocoa, about a fifth of sales usually made ahead of the start of the season. Smaller exporters from groups known as Pmex and Coopex accounted for 68 percent of the unfulfilled contracts.

The defaults forced Ivory Coast to reauction beans, putting further pressure on prices. The CCC allowed some defaulting companies to continue making purchases, raising the risk for the current season, KPMG said.

The biggest defaulters during last season were Nocoacy with contracts for 35,975 tons, Saf Cacao with 15,000 tons and 2CICS SA with 14,900 tons, according to the report. Saf Cacao had also defaulted on 7,425 tons in the 2015-16 harvest, it said.

To read the full article, click here.

16 Apr

KPMG South Africa Audits Own Staff After Breaking Public Trust

KPMG South Africa, which has faced scrutiny for its audit work on failed VBS Mutual Bank and companies linked to the politically connected Gupta family, said all staff face background checks every two years to try improve public trust in the firm.

“The vetting is to be done by an external, independent party,” Wiseman Nkuhlu, chairman of KPMG, told reporters in Johannesburg on Sunday. The firm will also extend a review of its past work to stretch back 18 months and set up a hotline for employees to raise concerns about the quality of KPMG’s work, he said.

Two of the auditor’s partners, Sipho Malaba and Dumi Tshuma, resigned this month after they were faced with disciplinary charges related to work done for VBS Mutual Bank, which collapsed in March after the lender was unable to repay some of its clients’ deposits.

The allegations against them included their failure to comply with the firm’s policies and procedures regarding the disclosure of relevant financial interests, KPMG South Africa said in an emailed statement on Saturday.

On the VBS work, “the disappointment and anger is palpable,” said Nhlamu Dlomu, chief executive officer of KPMG South Africa. If the two partners who quit need to be reported to the country’s authorities following the KPMG probe, the firm will take those steps, she said.

Last year, KPMG LLP’s South African unit appointed nine new executives in an attempt to restore trust in the auditing firm as clients distanced themselves over its involvement with the Gupta family.

The Guptas, who have fled South Africa, are accused of using their friendship with former President Jacob Zuma to win state contracts and influence government appointments. Zuma and the Guptas have denied any wrongdoing.

VBS, which isn’t listed, gained attention in 2016 when it gave Zuma a mortgage to settle a Constitutional Court order to repay taxpayers some of the money spent upgrading his private residence.

Source: https://www.bloomberg.com/news/articles/2018-04-15/kpmg-south-africa-putting-all-staff-through-background-checks 

18 Jan

S. Africa’s Companies Regulator Charges KPMG, McKinsey, SAP

South Africa’s Companies and Intellectual Property Commission laid criminal charges against the local units of audit firm KPMG LLP, management consultants McKinsey & Co. and software giant SAP SE.

The cases were opened with the South African Police Service between November and December for contraventions of the country’s Companies Act, the regulator’s spokeswoman, Tshiamo Zebediela, said in an emailed response to questions on Wednesday. The CIPC “has been looking into these companies since July 2017,” she said.

The CIPC is one of the first local regulators to bring criminal complaints against the companies for their dealings with entities linked to the Gupta family, who are friends of President Jacob Zuma and in business with his son, Duduzane.

Zuma and the Guptas have consistently denied any wrongdoing. It comes as the country’s prosecutors move to freeze assets held by McKinsey and a company linked to the Guptas.

“The CIPC engaged with the respective boards of directors of KPMG, McKinsey and SAP regarding the emails that were placed in the public domain,” Zebediela said, “and based on the responses received, took a decision to open criminal cases.”

“No criminal charges have been brought against the firm and KPMG South Africa believes that there is no substance to the allegation,” it said in an emailed response to questions. “We will fully cooperate with any enquiries the police may have.”

Below is a summary of the accusations from the CIPC:

McKinsey: The consultant may have contravened the Companies Act by informing Eskom that Trillian Capital Partners (Pty) Ltd. was acting as subcontractor for a portion of a project when McKinsey had never entered into a formal agreement with Trillian.

McKinsey spokeswoman Bonita Dordel told Johannesburg-based Business Day that the firm was not involved in bribery or corruption for work related to Eskom.

KPMG: The auditor may have failed its own risk management and quality controls when compiling a report for the South African Revenue Service and making legal conclusions that went beyond its mandate and professional expertise.

To read the full article, click here.