How does a company restore its reputation after an ethical failure? Name the recent corporate scandal, from Volkswagen to Wells Fargo to Equifax, all involving different issues and you can begin to see the challenges a company will face. Yet, what if the scandal is based on the failure of technical competence, as was recently seen with KPMG in South Africa? The international accounting firm found itself in hot water for its faulty audits of the embattled Gupta family. It will be interesting to see how KPMG can restore its reputation and if this model will work for other companies that might find themselves in similar situations going forward.

The company has admitted that it made serious errors in both the technical audits and areas of judgement. The company dismissed eight senior executives from KPMG’s division in the country and brought in Nhlamu Dlomu to head the South African operations for the company. KPMG also announced that it would retain a senior South African legal figure to head up an internal inquiry as to how accounting failures occurred. The danger to KPMG is that the scandal spreads to other countries in Africa or even beyond.

Several clients have terminated their relationship with the accounting firm. It is incumbent that the company move quickly to restore trust. Most compliance professionals still remember how quickly Arthur Anderson simply ceased to exist in the wake of the Enron accounting scandal and subsequent guilty verdict at trial for the destruction of documents. The current situation of KPMG could warrant several large African banks, which the company audits, to consider reviewing their ties to the company.

All of this demonstrates that any company must know be nimble in their compliance program. Not only did KPMG appear to get caught flat-footed from their relationship with the Gupta family but also faltered in the ongoing due diligence for customers. Finally, if your specialty is technical competence, if there are public and spectacular failures on those lines, your entire business line may be at risk. 

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