Lessons from KPMG: be on guard, South Africans are on your case

South African protesters hold placards as they march against corruption.
Reuters/Siphiwe Sibeko

Moses came down from the mount with tablets inscribed with 10 commandments. Most of us know (most of) them, and most of us fail to live by (most of) them. But if Moses had turned them over and looked in the fine print on the back, he’d have found the 11th Commandment:

Don’t get caught.

That in essence summarises the rise and fall of the South African arm of the international accounting firm KPMG which has been caught with its hands in the slush fund jar. It stands accused of taking money from companies owned by the politically connected Gupta family.

Even more damaging is the charge that it submitted formal reports “confirming” that a “rogue” unit was operating inside the South African Revenue Service (SARS) – accusations that were used as the smoking gun to remove ministers and senior public officials who were seeking to hold the line against state capture.

KPMG has miraculously grown a conscience. Suddenly – having broken the 11th commandment – it was reborn as a hand-wringing, apologetic company living up to high ethical standards. It was now willing to fire its CEO and some senior managers, to reject its own findings and to “donate” Gupta-company earnings to education and anti-corruption NGOs. The latter gesture was a revolting display of supine reprehensibility – we got caught in corrupt deals so we’ll hand the profits over to anti-corruption NGOs. Really? Go to jail would be a better outcome.

KPMG isn’t alone. Throughout South Africa’s history, and across the globe, the litany of private sector corruption is breathtaking.

Private sector corruption

South Africans can recall an unending litany of private sector corruption. In the recent past, there was the case of Tiger Brands making bread more expensive so the poor would pay more to eat. Tiger Brands paid a fine and carried on trading. And a clutch of major construction firms were found looting monies for the construction of stadiums for the 2010 Fifa World Cup in South Africa. They also paid fines and carried on building. The list continues.

The private sector, contrary to those who believe that ‘market forces’ will regulate the ethics of capital, is not taking a strong line against corruption. Those on the front line include, more recently, the portfolio committees in parliament, and previously, the Public Protector and a dwindling cluth of Ministers, MECs and the like.

NGOs such as Corruption Watch, the Socio-Economic Rights Institute of South Africa and the Council for the Advancement of the South African Constitution, have by a long distance, been the most vocal campaigners in the area, and academics have worked with them to uncover the scale and identify the perpetrators of corruption. The media has also played a massive part in exposing corruption.

So let’s not fool ourselves that the private sector has set a benchmark for anything more than export-class venality.

South Africa’s state is corrupt – “captured” makes it sound as if this occurred against its will. But - it has found a multitude of willing partners in the private sector. The match between corrupt state and corrupt private sector is perhaps South Africa’s most functional display of “willing buyer, willing seller”.

KPMG executives have not set any benchmark for probity, as claimed by some – they simply acted when they got caught. Their focus was on maximising profits, even if it meant signing off on the use of public funds for a private Gupta wedding (among other sins of commission), and now buying their way out of the mess with a few heads rolling and dirty money being donated to NGOs. If this is the standard for the private sector, South Africans are in more serious trouble than initially thought.

The KPMG “apology” can’t come close to compensating for the damage done. Its report “confirming” that a rogue unit had operated in the South African Revenue Services fuelled developments towards state capture and triggered events that have had a disastrous impact on the country. These included the axing of ministers, deputy Ministers, and the subsequent haemorrhage of senior public servants from the state.

Everyone in South Africa is paying for the sins of KPMG.

Holding power to account

Governance is about the distribution of power in society, and the ability of citizens to hold power to account. This requires an engaged citizenry – whether in NGOs, ratepayer associations, street or block committees or faith-based organisations – who are sufficiently organised to call officials to account.

What is fascinating about South Africa is how engaged its citizen are. They kicked out the ruling party from running cities after just two decades of democracy and they’ve given the middle finger to e-tolls. They don’t behave the way they are told to. And they’ve reached a tipping point. When South Africans of all shapes, colours, sizes, creeds share simply being gatvol (fed-up), there’s trouble.

Ask the British public relations firm Bell Pottinger what it feels like. The company faces foreclosure following a concerted campaign - domestically and abroad - to shame it for stirring racial hatred.

Ask the Guptas how it feels now that all of South Africa’s banks have said they aren’t willing to touch their money.

South African residents and citizens have become acutely aware that they’ve been screwed. By many in the state, to be sure. But by as many or more in the private sector, for decades. And they’re sick of it.

The world is watching – South Africans brought down Bell Pottinger. They’re now going after the likes of McKinsey, KPMG and SAP, all of these companies tangled up by allegations of corruption.

The only way South Africans will ever get governance and accountability is by being organised, vocal, obstreperous, and demanding. So keep it this way – private and public sector are both on terms. And South Africans will hold them accountable, or if necessary, break them.

David Everatt, Head of Wits School of Governance, University of the Witwatersrand

This article was originally published on The Conversation.

In photos: Ocean View residents and police clash over failure to reduce crime

“The people are suffering because crime has taken over. We’re crying for help.”

By Nomfundo Xolo and Ashraf Hendricks
22 September 2017

Onlookers watch as residents from Ocean View block Kommetjie Road during a protest on Thursday. All photos: Ashraf Hendricks

Police and about 150 residents of Ocean View in Cape Town’s south peninsula clashed on Thursday. This was the second consecutive day of protests. Youths blocked Kommetjie Road with stones, burning wood and tyres, while police used rubber bullets and teargas to disperse them. The protests continued throughout the day.

The purpose of the protest, which started peacefully on Thursday morning, was to demand that police take action to reduce the high level of crime in the township. Throughout the day discussions took place between public order police, the local neighbourhood watch, pastors and community representatives. But there appeared to be no resolution as barricades continued to burn.

Protesters complained about the lack of arrests following fatal shootings and other crimes in the community related to gang activity. A fatal shooting on Tuesday night that apparently left at least one person dead appears to have set off the demonstrations. (GroundUp had not been able to confirm this at the time of publication.)

“I was robbed last year in July by young boys who pointed a gun to my face and took my things. My two boys have also been robbed at gunpoint. When I reported it to the police they asked me what I was doing on the streets. We want the murderers and gunmen out of our community,” said Lee Adams.

Angelique Williams shouted: “We are here to take our streets back. The police must recognise us and take this matter seriously. The gangsters shoot even young kids, with deaths every week. When we report to the police they don’t come. Currently the gate to our local police station is locked. They’re supposed to protect us.”

Paul Franke, a member of the neighbourhood watch, said that after numerous discussions with local committees, councillors and the police about crime in Ocean View, the community had seen no results. “This is clearly the only way they will hear us. We’re not fighting with them but we’re fighting for our community to be safe once again. Twelve of my relatives have been killed through gang-violence,” he said.

Addressing the protesters, Andre Stewart said that the police also needed to protect those who report cases: “If you talk, you’re dead tomorrow. The people are suffering because crime has taken over. We’re crying for help.”

After discussions between various parties, a few police trucks, vans and metro police entered the township. But after a short while, a police truck was seen exiting, which angered the protesters. Nevertheless, the crowd was soon calmed by one of the community leaders.

However, a few boys who had been watching the protest from across the road began throwing stones at the truck that was moving away. This saw police retaliating, shooting teargas into the crowd. Shortly after, a water cannon dispersed the crowd and extinguished the burning tyres.

Chaos then erupted as stones were thrown by protesters, and police released teargas.

A resident throws oil onto an Ocean View road sign during Thursday’s protest against inadequate policing. 

About 150 people joined the protest

Ocean View resident Andre Stewart tells protesters to remain calm and hold their ground.

A dog sits nonchalantly in the middle of the drama.

Protesters attempted to roll burning tyres down the street towards police but it continually failed.

Police and residents hold a meeting. During the mediation, police told residents that they would enter Ocean View and remove firearms.

Resident cheer as more tyres are brought to the protest.

The barricades became large.

A water canon was used to put out the flames. A small group of residents threw rocks and shot a flare at police causing matters to escalate.

Protesters, a large number of whom were children, bocked the road. Police fired stun grenades to disperse them. 

The water canon put out the flames and dispersed protesters.

Protesters retaliated by throwing rocks which in turn made police fire rubber bullets and tear gas.

Children burn barricades. Video: Ashraf Hendricks

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Published originally on GroundUp .

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White farmers and Communist Party members join to fight bank evictions

Protesters demand change to legislation

By Ciaran Ryan
21 September 2017

Protesters gathered outside the South Gauteng High Court in support of a R60-billion class action bid to prevent the sale of re-possessed houses at very low prices. Photo: Ciaran Ryan

An unlikely alliance of white farmers, the SA Communist Party, trade unions and individuals whose homes have been repossessed by the four major banks came together outside the South Gauteng High Court on Friday to call for for a freeze on evictions.

Several hundred people gathered outside the High Court in support of a R60-billion Constitutional Court class action bid to change legislation to prevent the sale of re-possessed houses at very low prices. The protesters wanted to attract the attention of the judges of the High Court, where eviction orders are generally issued. The sale of re-possessed houses at sheriffs’ auctions without a minimum price has resulted in homes being sold for as little as R10, leaving the home owner to repay the mortgage shortfall.

More than a thousand applicants have joined the class action suit according to the Lungelo Lethu Human Rights Foundation, the main architect of the case. The applicants are asking the court to order the banks to refund an estimated R60 billion in home equity that was foregone as a result of repossession of homes by the banks over the last 20 years. Home equity is the difference between the market value of a property and the amount still owing on a mortgage loan. The current High Court rules allow homes to be sold without a reserve price, meaning they can be sold at auction for a fraction of their market value, which represents a potential loss to the home owner. The Constitution guarantees the right to adequate housing, dignity, and fair administrative justice, and prohibits arbitrary deprivation of property.

“We are sending a very clear message to the banks, the sheriffs, and the courts, particularly the masters of the courts, that we will not tolerate any more evictions of people from their homes,” said Solly Mapaila, second deputy general secretary of the SA Communist Party (SACP). “This is just the start of a mass rolling action campaign to stop fraudulent evictions by the banks.”

Mapaila called on South Africans to stand their ground when faced with eviction, and urged the police to stop providing support for evictions that he said were frequent in working class areas.

“In the apartheid years they called it forced removals, when the government was evicting black people from their homes,” said King Sibiya, head of the Lungelo Lethu Human Rights Foundation, which organised the protest. The Foundation provides legal support to thousands of evictees, mainly in Gauteng. “Now they call it evictions, but this time we are fighting the banks. We will no longer tolerate cases where people are evicted from their homes unlawfully – and in most of the cases we have investigated, these evictions were indeed unlawful. People like Ernest Mashaba and his family were evicted four times from their home in Katlehong, despite dutifully paying off their mortgage bond.”

Representatives from three of the banks were on hand to receive a memorandum calling for a freeze on evictions. Representatives from the High Court and the National Prosecuting Authority also received the memorandum, which describes SA’s property repossession laws as among among the most abusive in the world.

“Today, bank robbing is not about someone breaking in from outside the bank, but banks robbing their own clients,” said Sarel van der Westhuizen, representing several farmers and clients from the Potchefstroom area.

Sibiya said the Foundation was in possession of evidence of more than 900 cases where homes were bought at auction for less than R100, often by the lending bank itself. This is made possible by High Court rules that allow repossessed homes to be sold at sheriffs’ auctions without a reserve (minimum) price.

“This is more than a fraud,” he says. “It is a gross human rights abuse. If our Constitution is to have any meaning, these outrageous abuses must be stopped. We are calling on the government to bring an immediate halt to all home evictions, and within one year to introduce new legislation to force repossessed homes to be sold at market value.”

The mass action campaign also calls for:

• An end to inconsistent judgments, where essentially the same facts in a case result in different judgments, thereby making a mockery of the law
  
• Adherence to human rights-based judgments already handed down by the Constitutional Court such as the Gundwana and Grootboom cases. The Gundwana judgment theoretically puts an end to the practice of banks writing their own court orders and having them stamped by the court registrar, without ever presenting the facts of the case to a judge. The Grootboom case requires the State to provide accommodation for people with children living in poverty.
  
• A police investigation and Commission of Inquiry into criminal syndicates operating between the banks, sheriffs’ offices and property investors.
  
• An investigation into why credit life insurance policies, which are supposed to be paid to cover the outstanding bond amount if the borrower dies or loses his/her job, are — according to the Foundation — not being honoured.
  

Marius Marais, CEO for FNB Home Loans, commented: “FNB is aware of the allegations by Advocate Douglas Shaw and will address them formally once tabled before a court.”
Standard Bank spokesperson Ross Linstrom said: “We are aware of the matter. As this is an ongoing matter before the courts we are not in a position to supply further comment.”

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Published originally on GroundUp .

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Humansdorp residents protest for better housing

Mayor holds “stakeholder” meeting at country club while residents protest at community hall

By Joseph Chirume
21 September 2017

Protesters burnt tyres on the road near Shuku Shukuma informal settlement. Photo supplied

There have been ongoing protests in KwaNomzamo township in Humansdorp, Eastern Cape, since last Thursday. Residents are demanding houses and better services. A police constable was injured, vehicles stoned and municipal buildings damaged. Roads have been barricaded.

Police spokesperson Sergeant Majola Nkohli said a police constable sustained head injuries after she was hit by a stone. She was treated at the Humansdorp Hospital. He said a kilometre of the R330 near Shuku Shukuma informal settlement was damaged by burning tyres.

On Thursday morning, calm had been restored and the road to St Francis Bay reopened. The South African Police Service (SAPS) and Public Order Policing Unit (POP) continue to monitor the situation.

Councillor for ward 6, Velile Vumazonke (ANC), said: “Residents are fed up with the arrogance of the municipality. There was a list of proposed housing beneficiaries compiled by the previous ANC government. When the current [DA] mayor took over the reigns she promised to fulfil the obligations of handing out houses to the deserving beneficiaries. We are surprised that nothing is happening.”
Vumazonke also said residents want recreational facilities and the vandalised community hall to be refurbished. He said an amount of R5.5 million had been set aside for its reconstruction. He wanted to know what had happened to those funds.

Kouga municipality spokesperson Laura-Leigh Randall said, “The last time we had an exact count of the people on the housing waiting list it was approximately 13,000 names. The issue of the R5.5 million meant for the refurbishment of the hall in KwaNomzamo was that a tender was floated out by the municipality and unfortunately there was no positive response from individuals and companies to do the job.”

She said the mayor is willing to address the residents.

Vumazonke said residents waited all day for the mayor at the old community hall. He blamed the police for the protest turning violent on Wednesday, saying people were singing and dancing peacefully when teargas and rubber bullets were unleashed on them.

Kouga’s mayor, Elza van Lingen, said, “We arranged to meet them [residents] at the Humansdorp Country Club … All stakeholders were there to listen and respond to the grievances. However, the protesters chose not to attend the meeting.”

Van Lingen said, “We remain committed to resolving the conflict and are working closely with the ward councillor to address the grievances.”

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Published originally on GroundUp .

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What KPMG's Gupta imbroglio says about corruption in South Africa

Shutterstock

As far as corporate accountability goes, the recent announcement that the CEO and seven senior executives at auditing and consultancy firm KMPG in South Africa have resigned is a welcome development.

By resigning, the KPMG executives reinforced the principle of executive responsibility. This is a matter not taken seriously in South African culture, particularly when it comes to the public sector. The usual pattern when misdemeanours are uncovered is for government ministers and other senior executives to blame their staff – or someone else – when things go wrong.

At this level the action of the KPMG executives is to be respected. The hope must be that this behaviour becomes an example for others.

KPMG executives have set a new South African benchmark: executives assuming responsibility for wrongdoing in their organisations. South Africans should thank the firm for setting a new standard with this decisive action. Its executives have taken oversight responsibility for the action of others.

The role that companies such as KPMG plays is particularly crucial because auditor firms and consultancies are meant to hold companies and state entities to account by ensuring transparency and honesty. The fact that a firm of KPMG’s standing should be embroiled in a matter as murky as compiling false reports to serve the political ends of particular politicians highlights the degree of corruption that has taken hold in South Africa.

In light of this, are KPMG’s actions enough? I believe not. To pull South Africa back from the brink, the auditing firm should opt for full disclosure of all its involvement with the Gupta family as well as the companies they own. This should, inter alia, include all working papers, correspondence and audit findings. This would allow public scrutiny of the work it claims to have done under the banner of professionalism and provide the opportunity for a deeper understanding of the Gupta network. Nothing short of this will clear KPMG’s name.

From state capture to country capture

There is no doubt that KPMG’s report on a rogue unit completed for the South African Revenue Service has damaged South Africa’s image. But it has done more than that and raises the question whether South Africa suffers only state capture, or whether the rot is growing into economic capture of the whole country, what I term “country capture”.

The basis for asking this question is that the South African economy – and as a result its citizens – are paying a heavy cost for the mismanagement of the country’s resources. This has been through a combination of bad and neglectful management and out-and-out corruption. All this for the account of South African taxpayers.

South Africa’s fiscal position is precarious, with a revenue shortfall of more than R50 billion expected in the fiscal year to 31 March 2018. This growing shortfall is driven by subdued economic performance and will continue until the domestic economic growth recovers.

The shortfall is directly linked to low economic growth and recessionary conditions. These in turn have been caused by state capture. The private sector is reluctant to invest in the midst of corruption. This means that there is no new economic activity being started, a particularly bad situation given that industries such as mining are shrinking. This week Implats announced it was in negotiations with unions to lay off 2 500 workers. Unemployment is already at 27.7%.

Individual South African taxpayers are therefore being forced to bail out the government as it faces fiscal difficulties, placing the country on the slippery slope of country capture. This is reflected in the fact that government’s final consumption expenditure as percentage of GDP currently exceeds 20%.

What next?

Having ended up in this precarious position, it’s necessary to consider the way forward for KPMG and for South Africa.

KPMG clearly wants to save itself as a company and South Africa wants to rid itself of state/country capture. In redeeming itself, the firm can render a great service to South Africa in the quest to break the stranglehold. KPMG should disclose all dealings, findings, work papers, interactions and the like with the Gupta family businesses. This would achieve two objectives.

Firstly, it would show who is implicated and who is not. KPMG stated that there was no wrongdoing on its side in audits it did on companies owned by the Guptas. But this can only be settled through full disclosure.

Secondly, such a disclosure would help to reveal the full scope of state/country capture in South Africa.

Naturally KPMG’s dealings with the Gupta companies and Gupta family are subject to client confidentiality agreements. KPMG should therefore inform the Gupta family of its intention to publish within seven days. If the Guptas object in writing KPMG should approach the courts with a request to issue a clarification order to authorise disclosure.

This is the only way in which KPMG can salvage what’s left of its reputation in South Africa. KPMG should stand for: “Keep Pushing Mighty Guptas”.

At the same time South Africans would be able to use the disclosures as the basis for beginning to understand the full extent of state/country capture and the remedial steps necessary to turn this around.

Here is a small opportunity to make progress towards some light at the end of a very long and dark tunnel. The opportunity rests in the hands of KPMG. South Africa waits.

Jannie Rossouw, Head of School of Economic & Business Sciences, University of the Witwatersrand

This article was originally published on The Conversation.