One of the stranger moments of the Gupta state capture saga – which is rapidly turning everything that President Jacob’s controversial buddies touch into dross – is the decision by The Ethics Institute (TEI) to keep their accreditation of KPMG-SA’s “ethics and fraud” whistle-blower hotline.
Professor Deon Rossouw, chief executive of TEI, explains that the institute will not withdraw KPMG-SA’s accreditation, granted in August, since it is “technically sufficient to ensure that whistle-blowers who make use of the line can feel safe knowing their report is confidential.”. The hotline is hosted by KPMG-SA on behalf of its clients, so that they can anonymously report to the auditing firm any internal corruption at the client’s company.
It’s not configured to be used internally at KPMG-SA for whistle-blowing by its own staff. If as a local KPMG staffer you want to spill beans on your colleague or your boss’s malfeasance, forget about using the hotline.
In the past fortnight KPMG-SA has basically admitted to being a Gupta pawn. It has conceded also that its “rogue unit” report for the SA Revenue Service was a work of fiction – a hatchet job produced so that the forces of state capture could get rid of a couple of finance ministers and a swathe of SARS managers, all of whom stood in their way.
We also now know that some junior auditors at KPMG-SA had raised red flags over work done for the Guptas, specifically around writing-off the R30m cost of their Sun City wedding extravaganza as a business expense. They were slapped down.
Thus it is not irrational to conclude that any whistle-blower at SARS, or any Gupta-controlled company, would similarly have got short shrift if they phoned in any corruption tip offs to KPMG-SA. They might as well have written it on a mulberry leaf and buried it on a full moon at the bottom of the garden for the fairies to find, for all the good it would have done,
For it does not matter how correctly, how “technically sufficiently” the hotline staff might have been at processing the tip-off, at some stage the information would have been passed along to KPMG-SA operational staff to handle. There it would have stalled.
At worst, it may even have been misused by KPMG-SA operational staff, in cahoots with those accused of malfeasance. The leaked information, fed back to those accused, conceivably might be used to identify the whistle-blower or by the culprits to muddy their tracks.
Why would anything have changed? The forced resignation of its top executives, and the firing of a single auditor, does not suddenly mean that KPMG-SA is suddenly an ethically credible organisation. The operational staff dealing with whistle-blower tip-offs is essentially unchanged.
Until there has been a complete and transparent investigation by an independent agency, KPMG-SA remains tainted. Until KPMG-SA comes clean on the degree that it not only ignored auditing rules but also actively participated in a campaign to assist in state capture, the stench lingers.
KPMG-SA’s actions, as with those of UK public relations firm Bell Pottinger, go beyond breaking a few regulations. They verge on the treasonous, in that they were illegal actions to achieve political objectives.
As economist Dr Iraj Abedian said, criticising the failure of bodies to act more decisively over KPMG-SA: “You have to go through months and months of labour to prove KPMG-SA has done wrong? Give me a break, every high school kid knows that they have done wrong.”
TEI is a highly regarded organisation. It has considerable cachet, which is why corporate clients pay top dollar for its professional services, such as the hotline accreditation. While it might be the hotline that gets the rubber stamp, it is the operator that basks in the implied imprimatur of TEI endorsement.
So it is sophistry on the part the TEI to seek refuge behind the fig leaf of the KPMG-SA’s hotline meeting “technical sufficiency” standards. By such box-ticking approach, the Mafia’s very own “independent” hotline for snitches could garner the TEI’s seal of approval.
When I put these points to Rossouw in an interview, his response was that TEI endorsement of a KPMG-SA independent hotline cannot and should not be seen as an endorsement of KPMG-SA. “The certification does not have any bearing on KPMG-SA’s audit, advisory and forensic services, which are implicated in the current scandal. We expressed our condemnation of these unethical practices.”
“Can we have the wool pulled over our yes, as has the entire audit regulatory industry? Yes, that can happen. We are well aware of the dangers of being ‘useful idiots’.
“But the reality is that organisations can and do experience ethical failure. The response to such a failure cannot be to drive them into the ground. It must be to help them put themselves together again.”
All good and well. But the danger for TEI is that the investigations into KPMG-SA are just beginning and the possibilities for reputational contagion remain considerable.
There is a further inconsistency.
TEI is part of BEN-Africa, the Business Ethics Network of Africa. KPMG-SA has for years funded the NGO’s work and was to be the sponsor for this year’s BEN-Africa Business Ethics Forum. In response to KPMG-SA’s ethical meltdown, the forum has been cancelled and the disgraced auditing firm’s logo and strategic partnership status removed from all BEN-Africa material.
It is surely absurd that TEI won’t have anything to do with a conference that would have had KPMG-SA’s logo on it, but is happy for KPMG-SA to use TEI branding in its marketing.
TEI’s certification of KPMG-SA does not take place in a vacuum, but in the context of a seriously corrupted organisation. It is surely contradictory to condemn the behaviour of KPMG-SA’s audit, advisory and forensic services, but then recommend to whistle-blowers that they should use the hotline to trigger interventions by precisely those staff.
Despite TEI’s certification, my suggestion is that if you are an employee from the world of state capture, looking to blow the whistle using the KPMG-SA Ethics and Fraud Hotline, I’d save my breath. Stick to the fiddle, like your criminal colleagues.
Follow WSM on Twitter @TheJaundicedEye.