Barclays Africa's decision to fire KPMG is another body blow to the audit firm – and almost certainly not the last.
The decision came just weeks after the Auditor General terminated the firm's services from public sector audits. It’s only a matter of time before its other big banking audit Nedbank also pulls the plug. It only remains on board because of the voluntary separation process its parent Old Mutual is engaged in. Sacking KPMG right now would derail that process. It seems unlikely that Nedbank will retain KPMG for the long term.
KPMG till now has been able to put a brave face on the fact that it has been losing clients hand over fist. It said at the time of the AG's announcement that it hoped the decision would be temporary, but the firm is rapidly running out of time to convince remaining clients that it has a long-term future in South Africa.
The AG's decision to cut KPMG and Nkonki from public sector work led to the smaller firm’s Sunninghill business applying for voluntary liquidation. KPMG has more fat, but today's Barclays Africa announcement is a devastating move for the firm.
The Barclays Africa board had been keeping a close watch on KPMG following its admission that the work it did for SARS in the creation of the so-called “rogue report” - which facilitated a purge at the top of the organisation - had fallen far short of its professional standards.
It was going to put the re-appointment of KPMG to a shareholder vote at its coming AGM, but revelations of significant conflicts of interest in the relationship between senior KPMG audit partners Sipho Malaba and Dumi Tshuma appear to have been the final straw.
In a statement, KPMG said it was working to transform its public image: “We have implemented far-reaching changes over the past seven months to all aspects of the firm including governance, quality, and risk management… we are confident the steps we are taking to change the firm are the right steps to restore trust in KPMG…”
In the early days of the crisis, KPMG International acted decisively to remove eight senior executives after the SARS expose. But it was just the beginning of the firm’s reputation crisis. It seems impossible for anyone in financial services to use the services of KPMG while the AG refuses to use the group.
For Barclays Africa, it ran out of patience with the continuing scandals coming out of the firm.
“Subsequent to the release of our Notice of AGM, the ongoing and more recent developments were evaluated by the board, which decided that it is no longer able to support the re-appointment of KPMG Inc,” the firm said in a regulatory notice published on the Stock Exchange News Service.
For Nedbank, and others, it is only a question of time.
The SA Reserve Bank requires commercial banks to have two external auditors acting jointly. Barclays Africa has alerted its regulator to its decision and that it will use the services of only EY until a second firm is appointed.
Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster.Receive a single WhatsApp message every morning with all our latest news: Sign up here.