Ignatius Sehoole, CEO of KPMG South Africa, who has called for cheating auditors to be thrown in jail, says until South Africa has an effective justice system the fraud and corruption that has shredded the reputation of audit firms like his own will continue.
“We need that desperately, like a body needs oxygen, for this country to get back on track. You can’t blame those who believe that in this country crime pays. People do all these things and there don’t seem to be consequences.”
Business confidence is heavily influenced by how the justice system is working, whether corruption is being dealt with and whether there are consequences for corruption, he says.
“We need to remember that in the majority of cases the money that is siphoned away when there is corruption belongs to investors,” says Sehoole. “So how are investors going to flock into a country like South Africa and throw their money into a business if people are not held accountable when there is corruption?”
Accountability is top of mind for every investor, he says.
“A big reason we’re on the greylist is that the Financial Action Task Force doesn’t see any consequences for corruption. And being on that greylist is costing South Africans a lot. Everything you raise, capital, loans, whatever, is very expensive. People are not looking at us as a preferred destination for investment. And this is investment we desperately need to rebuild our country.”
The common denominator in many of the scandals that have rocked South Africa is the auditing profession. Sehoole says investors need to know that if the corporate environment has scandals, at least they can rely on South African auditors to bring them to light.
“Not long ago they were able to rely on our auditing profession and have complete trust in it. That trust has slipped through our fingers. And as we’ve seen, losing your reputation and trust is very easy. Rebuilding it is hard work and takes time.”
As KPMG has found out at great cost.
The list of clients it has lost because of its involvement in state capture is long: Nedbank, Absa, Sasfin, DRDGold and the office of the auditor-general all stopped doing business with KPMG.
Since Sehoole became CEO in 2019, KPMG has had compulsory ethics training for every employee, including himself.
But it has been no guarantee against corruption, as demonstrated by a senior employee who is right now before a commercial crimes court charged with stealing R16.5m from clients between 2021 and 2022.
“We’ve yet to crack the code as to what is it you have to do which guarantees that nobody in the organisation will put their foot wrong,” says Sehoole. “A strong culture of ethics and integrity will be more effective than any number of controls and processes.”
If enough of us talk about it more often and put enough pressure on government to give us a proper criminal justice system and put all the people who perpetrate corruption into jail, we can begin to turn things around. If we don’t, we’re on a very quick slippery slope to hell
— Ignatius Sehoole, CEO of KPMG South Africa
At the heart of this culture must be the absolute certainty that there will be extremely harsh consequences for anyone who is found guilty of cheating, and for him this means going to jail.
“Some people tend to not think of white collar crime as a criminal act. But it is a criminal act. It’s no different to a cash-in-transit (CIT) heist on the highway. Those people, including auditors, who knowingly commit white collar crime, who get involved in corrupt practices and fraudulent behaviour, belong in jail. They are no different from people who carry out CIT heists. What they do is equally detrimental to the public interest, and they must go to jail.”
KPMG is co-operating with officials to prosecute Sipho Malaba, the firm’s lead auditor, who is out on bail for his role in the R1.8bn scam at VBS Mutual Bank, “because we believe he and his accomplices belong in jail”.
The prosecution of Malaba and other auditors implicated in corruption takes far too long, he says. “Even if they finally get their day in court, justice delayed is justice denied.”
Another urgent and not entirely unrelated challenge is that the pool of talent for the auditing profession is getting smaller by the day because of emigration and an education system that is not producing enough people with the necessary skills, Sehoole says.
“This is one of the things we as a country really need to fix. It’s very rich to sit on top of the mountain and criticise those who leave, but you can have sympathy for people who say enough is enough, this country is going nowhere.”
Those “on top of the mountain” don’t understand the devastating impact on people of a lack of service delivery, crime, load-shedding, greylisting and everything else, he says.
But emigration is not the only reason the profession is dangerously short of skills. The scandals that audit firms have been implicated in have discouraged the kind of people who previously would have chosen this profession.
“When I chose the profession there was an aura of integrity around it that was so palpable you could almost touch it,” Sehoole says. “Auditing was revered. It really hurts when I find my profession now being questioned by everybody. That’s not what I signed up for.”
A decline in quality is inevitable unless the profession can start attracting more of the best and brightest again and the education system starts producing them, he says.
KPMG is collaborating with other firms and professions, such as engineering, to improve maths teaching at schools and universities.
“At the same time we’re working to rebuild the reputation of the profession. You can improve the pool but if you don’t improve the reputation, people will choose to do something else.”
The profession needs to be more outspoken about fraud and corruption, he says.
“This is a war. There aren’t enough voices out there. We’ve got to be relentless in pushing for the right thing to happen, in pushing for the right government, pushing for integrity and ethics and speaking out against fraud and corruption.
“If enough of us talk about it more often and put enough pressure on government to give us a proper criminal justice system and put all of the people, in the public and private sector, who perpetrate corruption into jail, we can begin to turn things around.
“If we don’t, we’re on a very quick slippery slope downwards to hell.”
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