Photograph — Financial Times

KPMG South Africa has announced its decision to lay off over 400 local staff in a move to refocus its business after recording a mass exodus of clients due to series of corruption scandals over the past one year.

The South African arm of the global accounting firm, KPMG, seeks to close some regional offices and focus its operations on only four cities across the country. From about 3,400 staff a year ago, the firm will now have about 130 partners and 2,200 employees, KPMG said on Monday. Johannesburg, Cape Town, Durban and Port Elizabeth are the only cities where the company will operate from now on.

“These hard decisions were necessary to put the firm on a more sustainable footing while ensuring we continue to offer our clients the best service and support,” Nhlamulo Dlomu, chief executive of KPMG South Africa, said in a statement. “We are putting quality and integrity at the heart of the business and, from now on, the firm will be focused on doing fewer things better.”

KPMG has been enmeshed in corruption scandals relating to its dealings with Gupta-owned businesses, who are alleged to have used their links to former president Jacob Zuma to influence government contracts. However, both the Guptas and Mr Zuma deny wrongdoing. In addition to this, the Big Four audit firm was also complicit in the now withdrawn report on the SA Revenue Service’s “rogue unit.” The aftermath of these scandals resulted in losing some of its biggest clients this year.

South Africa’s Auditor-General announced a decision to terminate all public contracts with KPMG in April while Barclays Africa Group, South Africa’s third-largest lender by market value, the South African Institute of Chartered Accountants and several local firms also parted ways with the firm.

KPMG South Africa’s chief executive, Trevor Hoole, COO Steven Louw, chairperson Ahmed Jaffer and five other senior executives all left last year as the scandal rocked the firm.

The restructuring within the firm will also include leadership changes that “will involve embedding in the firm for an extended period, a number of senior KPMG partners from across the international network into the board and executive positions, as well as senior client service roles,” the firm said.

Last year, South Africa lost the top spot in the strength of auditing and reporting standards in the World Economic Forum Global Competitiveness Report of 2017/2018. It dropped to 30th place in the audit rankings with a score of 5.4 compared to 2016/2017 where South Africa scored 6.7 out of a maximum of 7. South Africa had previously held the top spot for seven years since 2009/2010, and prior to that, it was in second place.

KPMG hasn’t been the only global auditing firm sullied by its links with the Gupta name. In January, South African prosecutors tried to freeze $130 million of McKinsey South Africa’s assets over their role in a deal that saw a Gupta-owned company become the main coal supplier for the national power company, Eskom. Even though it denied any wrongdoing, McKinsey obliged to pay the money back to the South African state.

The CEO of South Africa’s Independent Regulatory Board for Auditors (IRBA), Bernard Agulhas, has pledged to deal decisively with the current crisis in the accounting and auditing profession. The regulator also seeks to change the Auditing Profession Act 26 of 2005 (APA) to implement harsher sanctions and greater powers for the regulator to discipline errant auditors.

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