KPMG cans SARS 'rogue unit' report‚ apologises to Gordhan

International auditing firm KPMG has withdrawn all of its findings‚ recommendations and conclusions around its report into the South African Revenue Service (SARS) "rogue spy unit".

The report was partly instrumental in the downfall of former finance minister Pravin Gordhan‚ who was accused of knowing and endorsing the "rogue unit".

The unit was accused of conducting covert intelligence operations under "Project Sunday Evenings"‚ with its members allegedly spying on‚ among others‚ the National Prosecuting Authority.

Allegations around the unit's work led to Gordhan‚ who was SARS commissioner at the time‚ being criminally charged‚ with the Hawks pursuing a determined criminal battle against him. The National Prosecuting Authority eventually declined to prosecute Gordhan.

The allegations saw the suspension‚ and ultimate removal‚ of several senior SARS investigators from the High-Risk Investigation Unit‚ who were conducting multiple investigations into suspected criminals linked to crimes such as money laundering and tax evasion.

KPMG's announcement on Friday calls into questions the findings of several other independent panels that were established to look into the rogue unit's alleged operations following KPMG's report and conclusions.

KPMG said that it would now pay back SARS the R23-million it was paid to compile the report. If SARS did not want the money‚ KPMG would donate the fee to a charity.

The announcement came after the conclusion of the company's investigation into its association with and handling of the controversial Gupta family's accounts in Johannesburg.

The bombshell has led to the company forcing nine of its top South African executives to resign‚ including its chief executive officer‚ Trevor Hoole‚ and chief operating officer and country risk manager‚ Steven Louw.

KPMG interim chief operating officer Andrew Cranston said SARS engaged KPMG SA in December 2014 to perform an "extensive document investigative review which resulted in the 'Report on Allegations of Irregularities and Misconduct'."

"A version of the report dated September 3 2015 was leaked and made public on October 4 2015. It was accepted as final on January 26 2016‚" said Cranston.

He said the mandate involved an extensive document review and a collation of the documentation.

"At a later stage‚ this mandate was extended to the provision of a report which included conclusions‚ recommendations and legal opinions. As a result‚ during the course of the engagement‚ the scope of the work changed.

"KPMG International has concluded that KPMG SA did not properly grasp the new risks associated with this change and consequently the appropriate consultation with risk management did not take place. Importantly‚ quality controls associated with the version of the report dated September 3 2015 were not performed to the standard we expect.

"Specifically‚ in this instance‚ our standards require a second partner to review the work done. However‚ the final deliverable of this work was not subjected to second partner review."

He said the SARS report referred to legal opinions and legal conclusions as if they were opinions of KPMG SA.

"However‚ providing legal advice and expressing legal opinions was outside the mandate of KPMG SA and outside the professional expertise of those working on the engagement. KPMG SA acknowledges that such opinions should have been caveated as recommendations of legal advisers and not formulated in the manner contained in the report."

Cranston said the language used in sections of the report was unclear and resulted in certain findings being open to more than one interpretation.

He said‚ as a result‚ if certain sections were read‚ it suggested that Gordhan knew‚ or ought to have known‚ of the establishment by SARS of an intelligence unit in contravention of the law that was "rogue" in nature.

"This was not the intended interpretation of the report. To be clear‚ the evidence in the documentation provided to KPMG SA does not support the interpretation that Gordhan knew of the 'rogue' nature of this unit.

"We recognise and regret the impact this has had. KPMG SA had no political motivation or intent to mislead. The partner responsible for the report is no longer with the firm."

Cranston said that given the failure to appropriately apply KPMG's own risk management and quality controls‚ "that part of the report which refers to conclusions‚ recommendations and legal opinions should no longer be relied upon".