SARS Wars, season two: How can we trust the KPMG report?

Let's begin by asking a few simple questions. Firstly, what is the point of spending millions in taxpayers money commissioning a report from an independent auditing firm (KPMG) only to have the firm return its findings and instructing the client (SARS) that these may not be used “for the resolution or disposition of any disputes or controversies thereto and is not to be disclosed, quoted or referenced, in whole or in part”?

Too little too late, one would think considering that the casualties in the fallout from the controversial KPMG report, commissioned by Tom Moyane who was appointed by President Jacob Zuma to head the country's vital Revenue Service in September 2014, already lie wounded, but not mortally so, along the blood-soaked path.

The apparent intention of SARS in appointing KMPG was to independently investigate claims about the establishment and operation of an alleged SARS “rogue unit” charged with spying on (or for, depending on who you believe) President Jacob Zuma and which allegedly set up a brothel to entrap ANC members and other high level politicians. The unit was also accused of snooping on multinational tobacco companies, organised crime syndicates and others suspected of massive tax evasion.

These untested allegations in the KPMG report, leaked to the Sunday Times which published stories three months before it finally landed on Moyane's desk on 4 December 2015, resulted in a mass purge of senior SARS staff. This included acting commissioner Ivan Pillay, group executive Johan van Loggerenberg, SARS strategic planning and risk head, Peter Richter, Pillay's adviser Yolisa Pikie, SARS spokesman Adrian Lakay as well as Clifford Collings, head of the anti-corruption unit, (who was apparently disciplined for failing to provide Moyane with a new car on time).

The reports, published in the Sunday Times, led to the swift exit of all of the above-mentioned SARS employees.

The SARS saga is a national crisis that has been unfurling on the front pages of newspapers and which continues to threaten stability of the country's revenue service. SARS, once one of the country's most efficient government institutions - in fact the engine of government - is now clouded in controversy and animosity as Moyane is now pitted against Finance minister Pravin Gordhan, who is attempting to arrest a massive “restructuring” exercise.

After his surprise reappointment when President Zuma fired Nhlanhla Nene, Gordhan was quick to establish his authority, popping in to make a surprise visit to Moyane at SARS head office in Cape Town just before the holiday break. The men met three times afterwards but it appears Moyane has had time to rethink his position in relation to Gordhan and has made a bold comeback in direct defiance of Gordhan's orders.

The filling in the sandwich is President Jacob Zuma who cannot be seen to be undermining a finance minister who was parachuted in after his unilateral and potentially catastrophic move in firing Gordhan's predecessor, Nene.

The stakes and the casualties of this battle not only involve the individuals concerned but also South Africa's reputation and financial stability in a dangerously volatile economic climate and with serious threats of a further ratings downgrade.

Daily Maverick has reliably learned that senior officials up to to level seven have all been instructed by Moyane to re-apply for their jobs. Some staff, with years of experience, have been flown to Pretoria, at taxpayers expense, to be re-interviewed and assessed this week by audit, consulting, corporate finance, tax services and risk advisory firm, Deloitte. This flies in the face of re-appointed minister of Finance, Pravin Gordhan's instructions to Moyane to “cauterise” his current “restructuring” and the implementation of his “new operating model” in the revenue services. It is an apparent open declaration of war by Moyane, who appears to enjoy support from President Zuma.

Moyane has disbanded the highly successful and effective National Projects Unit which has been responsible for investigating several massive cases and recovering billions in revenue over the years.

Moyane reports to Gordhan as Minister of Finance, but he [Moyane] has administrative power as the accounting officer at SARS. Meanwhile Moyane has reportedly taken advice on what he views as Gordhan's “attempt to usurp his powers” from the legal firm Mashiane Moodley and Monama, the same firm who, according to a memorandum dated 21 August, 2015 (seen by the Daily Maverick), instructed KPMG's director, Johan van Der Walt, on which findings investigators should make in the final KPMG report.

Both Van der Walt and the attorney who signed off the August 21 memorandum to KPMG, David Maphakela, refused to confirm or deny to the Daily Maverick whether it had originated from Mashiane Moodley and Monama or whether KPMG had solicited it.

Photo: A few pages of the August 21, 2015 memorandum from Mashiane Moodley and Monama to KPMG's Johan van der Walt.

On Friday, a confidential covering letter by Van der Walt, dated 4 December 2014 and addressed to Moyane, was publicly leaked. The letter informs the commissioner that while the names of individuals had been removed from the report “as requested...the facts reported on did not change from the version including the names.”

The most obvious conclusion that can be drawn from this covering letter is that KPMG, one of the largest international auditing firms, is scrabbling to cover its back (or arse depending on the view) and to limit potentially serious reputational damage in the now “open warfare” between Moyane and Gordhan who was SARS commissioner between 1999 and 2009.

But how “independent” is the report and did the version sent to Moyane include the “findings and recommendations” Mashiane Moodley and Monama sent in the August memorandum to Van Der Walt?

In the memorandum Mashiane Moodley and Monama recommend that KPMG find – among other suggestions - that the “rogue unit”, on the instructions of former acting commissioner Ivan Pillay, “unlawfully monitored, intercepted communication, recorded and transcribed recordings at the NPA offices”, that the unit unlawfully “engaged in the procurement of intelligence gathering equipment” and that “SARS should consider instituting criminal proceedings with regard to “fraudulent circumstances surrounding the approval of Mr Pillay's contract wherin the Minister of Finance [then Pravin Gordhan] approved 3 year period but the period was mysteriously changed to 5 years. The criminal proceedings should be levelled against Mr Pillay and Mr Magashula [commissioner after Gordhan]”.

At a press conference soon after Gordhan's reappointment, Gordhan lashed out at the KPMG report which had also allegedly recommended that he [Gordhan] be investigated for his role in creating the “spy unit”.

“This allegation which has no foundation (is) based on leaked documents that even I haven’t seen. Tell me how would you like to be accused of something on the basis of a document that hasn’t been put to you, on the basis of questions that haven’t been put to you, on the basis of no opportunity being given to you to say what the facts of the matter are,” Gordhan lashed out.

He added that KPMG had “the cheek” to state that he [Gordhan] had claimed he had no knowledge of the unit and that he “should” have known about it.

"Wow! I thought forensic people were supposed to come up with facts. What does this say about the reputation of KPMG?" Mr Gordhan asked.

Pillay, Van Loggerenberg and Gordhan took the Sunday Times to the Press Ombudsman after the paper's investigative unit had published several stories it claimed were based on the final KPMG report that had been leaked to its reporters.

An unexpected bombshell exploded at the Press Ombudsman’s hearings when journalist Pearlie Joubert, who had worked in the Sunday Times investigative unit, provided an affidavit in which she disclosed that one of the sources for the paper's stories had been Advocate Johan Mastenbroek, former husband of Sunday Times editor Phylicia Oppelt. Mastenbroek was also a former SARS official who had taken an oath of secrecy.

Mastenbroek was subsequently appointed on the panel of the Kroon Commission investigating SARS and headed by retired judge Franklyn Kroon. Joubert said that she had written to former Minister of Finance, Nhlanhla Nene, raising concerns about Mastenbroek's appointment considering his role in the Sunday Times leaks.

Joubert said she had decided to reveal the paper's source as she was “not willing to be party to practices at the Sunday Times which I verily believed to have been unethical and immoral”. She charged that the stories that were published in the paper were false and appeared to have been “an orchestrated effort by persons to advance untested allegations in a public arena”.

On December 16 the Press Ombudsman, Johan Retief, ruled that the paper had breached several sections of the Press Code and that its reporting had been “inaccurate misleading and unfair”.

“The reportage as a whole essentially stands or falls with the validity of the KPMG 'report', and therefore also with its summary. The newspaper is adamant that both these documents are genuine, and even provides the panel with a photograph of the cover page of the report itself,” said Retief.

He said the panel investigating Pillay, Van Loggerenberg and Gordhan's complaints had noted that the Sunday Times articles had consistently referred to the KPMG document as a “report” and not a “draft report”.

Advocate Eric van den Berg, who was part of the Sunday Times legal team at the Press Ombud hearing, submitted that “The (newspaper’s) investigative units’ sources confirm that the KPMG have handed over the final report. A draft was sent to the Commissioner and SARS’ attorneys commented on the draft. A final report was prepared taking into account the comments in the SARS’ lawyer’s letter. Thereafter eight copies of the report were prepared each one clearly watermarked and the recipients including (sic) the Minister of Finance and his deputy. From a KPMG perspective it appears to be final and was sent to SARS and Treasury some time ago.”

In his findings on the Sunday Times, Retief said that he had personally asked KPMG whether the report had been released or not and was told “on good authority that there were six draft reports, and that the copy that was leaked to Sunday Times was among the earlier ones. Also, that the final report has not been released yet. Based on this, the panel has to accept that the 'report' with which Sunday Times worked was a draft, and therefore that no statement contained in that draft was final. Furthermore, not only could these 'findings' have been changed, but there is no reason to assume that even the final findings would have been accepted by SARS (or Treasury).”

The Sunday Times plans to appeal the Press Ombudsman’s findings but has, in the meantime, apologised to Gordhan, but not to Pillay & Van Loggerenberg.

Meanwhile, it has been alleged, but could not be confirmed, that Songezo Zibi, widely respected editor of Business Day – another publication in the Times Media Group stable of which the Sunday Times is the flagship – resigned because of interference in his editorial independence related to stories regarding SARS and the Dudu Myeni scandal at SAA.

David Maynier, DA Shadow Minister of Finance, this weekend called for the KPMG report be made public to prevent a “civil war between the Minister of Finance, Pravin Gordhan and Tom Moyane Commissioner of the South African Revenue Service.”

“The Minister should act to cool the temperature and prevent a full-scale 'civil war' by taking steps to resolve the uncertainty surrounding the restructuring of SARS and ensuring the KPMG's final report on the SARS 'rogue unit' is made public. The Minister cannot afford to create the impression that he has something to hide,” Maynier said in a statement.

Former SARS officials Ivan Pillay, Peter Richter, Yolisa Pikkie and Adrian Lakay also issued a statement in the light of the final KPMG report being handed to Moyane.

“The public must know that none us have ever been engaged by KPMG during the process leading up to the alleged report. We were not afforded any opportunity to make representations on the allegations against us. Conducting investigations and making findings without giving affected parties a right of reply to allegations against them is procedurally flawed and untenable in law. Thus we must caution anyone who may want to attach any value to a report that is the result of a legally questionable document and process. Until such time as we have been afforded a right to reply to its content, is of no consequence.”

They added that they had noted that KMPG “was ostensibly instructed by SARS not to engage with any of us in the course of their investigations. If proven to be true, this would raise further questions on the legality and value of such a report. A forensic report should be a result of scientifically determined facts rather than suppositions.”

The men added that earlier requests during 2015 to KPMG to engage and for those accused to be afforded access to their documents were denied by the firm.

“A Promotion of Access to Information Act request to KPMG was also declined. Instead, it was suggested that KPMG had 'waived all moral rights' to their report. KPMG further stated that they were contractually forbidden to engage with us by their client, SARS. We find such a unilateral agreement on matters which quite clearly materially affect our rights, untenable in law.”

The KPMG report, they conclude “was not intended to be an exercise in the pursuit of truth.”

While KMPG have remained silent throughout the matter, it describes itself on its South African website thus: “KPMG operates as an international network of member firms offering audit, tax and advisory services. We work closely with our clients, helping them to mitigate risks and grasp opportunities.”

Which risks have been mitigated and which opportunities grasped in this saga have yet to be fully revealed. DM

Photo: SARS Commissioner Tom Moyane (GCIS photo) and Finance Minister Pravin Gordhan (WEF photo)