Ignatius Sehoole, CEO of the SA arm of audit firm KPMG, tells a story about a group of young accounting students who’d come to visit one auditing firm. At the end of the presentations, the students were asked if they had any questions. "This youngster raised his hand, and when someone pointed at him, he said very sheepishly: ‘Sorry sir, but can we please go see your parking lot?’"
For Sehoole, this illustrates that many recruits have lost the notion of working in the "public interest", fixating instead on "delighting the client", hoping this translates into bonuses.
The disjuncture comes from who you see as the client: in theory, it’s the public and investors (including pension funds); in practice, audit firms tend to see it as the CEO of that company who signs the cheque. Bend over backwards to please the boss and you’re rewarded with giddying auditing fees and, the cherry on top, lip-smacking consulting deals.
"You mustn’t do anything to upset the client. That, in my humble opinion, is the worst thing we’ve done as a profession," says Sehoole. "If your client’s interests are not aligned to the public interest, you’ve got to wonder, is this the sort of client you want to have?"
If the CEO of a mutual bank wants an auditor to overlook municipalities illegally stashing cash at the bank, or the top official at a state agency wants a report to purge staff he dislikes, pleasing the "client" can deeply damage the public.
Sehoole says he’d like to see those companies "running around looking for an auditor, and nobody is willing to sign them up". The reality, of course, is that companies with a large enough chequebook have never found it that hard.
KPMG, famously, was the auditor for the Gupta family for 15 years, and audited VBS Mutual Bank, which was pilfered of R2bn. Along with the "rogue unit" report prepared by KPMG’s consulting arm for SA Revenue Service (Sars) boss Tom Moyane, it nearly broke the firm as clients like Sasfin or Old Mutual either fled or scaled back mandates.
Sehoole joined in June 2019, teaming up with the chair, Wiseman Nkuhlu, to rebuild the business — evidently along very different lines to their predecessors.
On Friday, Sehoole said the reforms were winning back clients. In recent months, KPMG has been appointed as auditors of Sanlam, Absa and IT firm Adapt IT, while it won consulting contracts from the SA Reserve Bank, Mr Price, Barloworld, Telkom, Anglo American and MTN.
If your client’s interests are not aligned to the public interest, is this the sort of client you want to have?
And yet, KPMG SA’s revenue is still only two-thirds what it was before the Gupta storm. It’s a long road back, especially at a time when every audit firm is grappling with their own smallanyana skeletons: Deloitte (Steinhoff and Tongaat Hulett), EY (Wirecard), and PwC (SAA).
These failures have inflamed the crisis of confidence in the profession, highlighting the gap between what the public wants (an assurance that accounts are real) and what auditors say they can do (they say they can’t detect fraud — they’re watchdogs, not bloodhounds, they claim).
Last Friday Nkuhlu spoke extensively about this at the launch of his memoir, Enabler or Victim?, which details his time at KPMG and his ideas for reforming the industry.
Nkuhlu knows what he’s talking about. After being jailed on Robben Island in 1963 under the Suppression of Communism Act, Nkuhlu qualified as SA’s first black chartered accountant in 1976. In 2000, he was appointed as the economic adviser to then president Thabo Mbeki.
He says auditors can’t keep failing to spot immense frauds, then claim there’s an "expectation gap" because the public doesn’t understand their job. "If auditors are not able to find fraudulent practices that are running for five years or longer, and the public is angry, is it because the public does not understand the role of auditors?"
Often, the "expectation gap" is an excuse for missing something any conscientious auditor would have seen.
Nkuhlu also agrees with Sehoole that many auditors have lost their independence. "The underlying reason for the monumental mistakes at KPMG was the disconnect with the original purpose of the profession," says Nkuhlu.
Over time, he says, auditors began to be seen as less a sceptical check on executive authority and more as allies to the CEO, creating a fertile environment for corners to be cut. To echo Sehoole, they forgot who they worked for.
Nkuhlu says KPMG wants to revive this "public service" imperative. And it is trying to restore confidence by, for example, looking to pay reparations to those ousted from Sars. "People were traumatised and there is a need for some kind of reparations and KPMG has committed itself to contribute to that," he says.
It’s a step welcomed by Johann van Loggerenberg, a former Sars executive and convener of the group, Survivors of State Capture at Sars. He says, given how KPMG had ummed and ahed for years, and withdrawn only parts of its report, Nkuhlu’s unvarnished apology is a big deal.
"What was really significant — and different from Bain & Co, McKinsey, SAP and others who’ve issued apologies — is that this is an unequivocal owning of the fact that their report caused damage. KPMG went further, to say it would contribute to help those who were harmed," he tells the FM.
He says Nkuhlu did KPMG a huge favour by breaking the mold of the bland lawyered "corporate excuse". That it came from the chair, and not from a spokesperson, says a lot about Nkuhlu as a human being, he adds.
Evidently, KPMG is doing the right things. But sceptics question whether this commitment will last.
While Nkuhlu and Sehoole believe that by prioritising the "public interest", KPMG can avoid the next Steinhoff or VBS, it won’t be so simple. It’ll mean often ignoring the desires of the man signing the audit bill — someone who, in the worst cases, is entirely used to getting his own way.
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