The KPMG logo is seen at the company's head offices at La Defense business and financial district in Courbevoie
JOHANNESBURG - Auditing firm KPMG has blamed the loss of lucrative government contracts for its decision to let go of 400 of its staff as KPMG International ramped up its scrutiny of the local office’s work. 

KPMG South Africa chief executive Nhlamulo Dlomu said Auditor-General Kimi Makwetu’s decision to sever ties with the controversy-prone firm left some of its regional offices unviable. 

“It is important to note that a significant work we did on behalf of the auditor-general was done through our regional offices. The loss of the contract has put the financial viability of these offices at risk, hence the difficult decision we took,” Dlomu said. 

Yesterday, KPMG said it would wind down its operations in Bloemfontein, Mbombela, Polokwane and East London. 

The firm has 12 offices across the country. It said it would also consolidate its Pretoria office and Johannesburg operations, charging the restructuring would see it left with with more than 130 partners and 2 200 employees in South Africa.

Dlomu said the retrenchments would mostly affect its back office staff, audit unit and advisory unit. She said staff from its financial services unit – which was fingered in the VBS Mutual Bank scandal – would not be affected. In April Makwetu withdrew all government auditing contracts from KPMG and Nkonki, citing concerns over the firms’ audit standards. 

The contracts covered every sphere of government, from municipal to local and provincial. The firm has been battling accusations of facilitating the Guptas’ alleged tax evasion and corruption. Another charge levelled against KPMG relates to a problematic report produced by the firm for South African Revenue Service (Sars). The discredited report, which KPMG has since withdrawn, claimed that a rogue spy unit was operating within Sars. Iraj Abedian, the chief executive of Pan-African Resources Investment and Research Services said KPMG’s demise was nigh.

Too corrupted

“The brand is too corrupted to recover. Now is the opportunity for smaller firms to bulk up and step up their game, so we can see real transformation in the sector,” Abedian said. The scandals engulfing the firm have seen it lose a number of JSE-listed companies, chief among them Absa, which ditched the firm last month. KPMG International said it
would “embed for an extended period” a number of senior KPMG partners from across its international network into board and executive positions, as well as senior client service roles. Bill Thomas, chairperson of KPMG International, said KPMG SA was an important part of Its global network. “The decision to embed additional senior international partners into the South African leadership team is evidence of the significant investment KPMG International is providing to help ensure KPMG South Africa can continue to focus on trust, quality and integrity,” 

Thomas said. Aeon Investment Management chief investment officer Asief Mohamed said the KPMG International’s intervention would be a costly exercise. He said the staff retrenchments were inevitable following loss of key clients for the firm. “I would not be surprised if KPMG International has to put in at least R1 billion to fund losses in its South African operations due to losses of clients,” Mohamed said 

- BUSINESS REPORT