Scandals have cost accounting and consulting giant KPMG credibility and trust

Sydney’s regenerating waterfront area of ​​Barangaroo offers some of the most expensive real estate in the country. The offices of Australia’s business elite are just a stone’s throw away from their wealthy neighbors sitting atop Crown’s Sydney casino.

In order to get office space in this region, you need to do something very profitable and be very good at it.

For Australia’s multibillion-dollar consultancy industry, which provides two key tenants in Barangaroo, this provides everyone with the audit work every Australian business must undertake to reassure everyone that their financial accounts are reliable.

Everyone with an investment or super fund is confident in their own important business.

The implosion at former $2.3 billion stock market giant Corporate Travel Management after its auditors discovered it had overpaid the British government by as much as $240 million is a case in point. As the Australian travel company’s troubles deepen, some have slashed their valuations of the business to zero.

Sensitive government departments, such as the tax office and the federal police, all make heavy use of the services of auditors.

For KPMG, one of the largest tenants on the multi-billion-dollar Barangaroo project, it underlines that their financial superpower is their reputation for integrity, independence and robust confidentiality.

You don’t need much imagination to understand what happens when this reputation is damaged.

KPMG’s Barangaroo neighbor and rival PwC has laid off lucrative clients and hundreds of staff and been forced to close its entire government business for $1 after a tax leak scandal broke in 2023 over allegations the firm used secret government tax schemes to help win new clients.

In this context, it’s easy to understand why it took two years for the explosive allegations of a former employee turned whistleblower to become public. Critics claim KPMG has been too slow to investigate the allegations, to say the least.

Last week’s scandal cost KPMG Australia boss Andrew Yates his job. The same goes for audit boss Julian McPherson. Yates and McPherson resigned abruptly after the company confirmed confidential customer data was being shared and potentially used to win new business with other customers.

The carnage continued this week, with Yates heir Eileen Hoggett stepping down from administrative duties as the investigation into the scandal continues.

Lendlease, which has been KPMG’s auditor since Robert Menzies became prime minister and has its headquarters in Barangaroo, which it developed, has also signaled that it is preparing to cut all ties with the firm.

A spokesman said: “It is not appropriate to make changes to auditors so close to the end of the financial year. We will review our audit services following the completion of FY26 reporting.”

A day later, another major client, property giant Dexus, publicly stated that it did not want Hoggett to sign off on its financial accounts being finalised.

One of the most colorful allegations made public in March, when Labor MP Deborah O’Neill brought up the whistleblower allegations in her Senate speech, perfectly reveals the reason for the massacre.

The story involves a laptop and a lunch break in a scene that could have been written for a Hollywood casino prank. Eleven of the Ocean.

The day before the 2023 Melbourne Cup, a KPMG executive providing services to Dexus casually announced he was going to lunch and walked out with sensitive Dexus documents open on his laptop, the tipster said.

This alleged orchestrated arrangement meant that KPMG staff in a different part of the firm bidding for Dexus’ multi-million dollar external audit work would have access to this sensitive information without Dexus’ express wishes.

KPMG’s response was: research had revealed “an inappropriate, informal remark in a team environment” that resulted in the individual being reprimanded. Frankly, he was joking.

This issue is being investigated again, which is a pretty important warning considering what has come to light before.

Was the laptop left open in a room where employees were prohibited from accessing this Dexus information? This is the kind of conflict management that is essential for a professional firm dealing with the most sensitive client information and internal teams with conflicting goals.

ASIC confirmed it was investigating KPMG staff named in the allegations to the fullest extent of its authority.

KPMG will need to do better to protect the firm from allegations outlined by O’Neill, which include “misuse of confidential information, corruption in ASX audit tender processes” and allegations that KPMG retaliated against the whistleblower for raising these concerns.

“There are clear allegations here of deeply unprofessional and unethical behavior,” he said.

When this situation arose, KPMG had already won the Dexus contract from PwC. The accounts for the financial year ending this month are expected to be signed off, in what are now highly controversial circumstances.

A Dexus spokesperson said: “As soon as we became aware of this matter, we contacted KPMG directly at board and executive level and this active engagement continues.

“We take this matter seriously and are committed to ensuring the integrity and independence of our external auditor arrangements. We confirm that Dexus will have a new signing partner for the FY26 accounts.”

For KPMG, it’s a reminder that the allegations and their impact are beginning to mirror the tax leak scandal at rival PwC, which is already feeling the blows as the laptop affair continues.

Just days after the 2023 lunch incident, Westpac announced it would remove PwC as its auditor. He put out a tender for a business that generated $70 million in wages in the last two years alone.

Hours later, PwC announced that hundreds of staff would lose their jobs due to the scandal and its impact.

The Westpac tender was won by KPMG, another contract victory in the whistleblower claims. So will Macquarie Group, Australia’s most lucrative audit firm, which is currently outsourcing its $70 million-a-year business to KPMG if shareholders approve the change.

Another serious allegation made by the whistleblower concerned access to the most sensitive documents within Lendlease and any company: board papers normally private to directors and sometimes senior managers and trusted advisors.

The documents, which KPMG auditors could not access, related to discussions about whether Lendlease would put the audit work out to tender. The importance of information went beyond KPMG’s lucrative work in the group.

A letter from Lendlease chief executive Tony Lombardo to a parliamentary joint committee chaired by O’Neill in late April confirmed that KPMG had first become aware of the whistleblower allegations in May last year; Sensitive board documents were accessed by audit partners to win business with other clients – but KPMG said it was satisfied there were “no issues”.

After O’Neill published the whistleblower’s allegations in March, KPMG told Lendlease that one of its audit partners had indeed accessed board documents but that the consultancy group considered the documents to be of “low sensitivity” giving it “zero competitive advantage”.

The matter is also being re-examined in an external investigation by law firm Allens.

“Lendlease has informed KPMG that its employees’ actions are unacceptable and is consulting with KPMG on further action,” Lombardo said in a letter to the parliamentary committee.

It was in April. This week Lendlease began the process of finding a new auditor for the job, which is worth about $10 million a year.

The biggest question for many is why it took almost two years for the whistleblower complaint to finally surface.

KPMG doesn’t say why this is taking so long. But O’Neill says he believes the firm “used every legal tool at its disposal to expose the whistleblower and prevent the issues raised from being properly investigated.”

It is significant that as recently as May 14, KPMG referred to the person making the allegations as a “former employee” rather than a whistleblower. The fact that he has not used the word whistleblower for two years shows this. When a company recognizes an employee as a whistleblower, there are protections for the employee under company law.

Although KPMG offers whistleblowing services to corporate clients, you will face serious consequences under the Corporations Act if they breach whistleblower protection, partnerships such as KPMG are not covered by these laws.

The complainant first notified KPMG of the allegations in May 2024 and sought whistleblower protection.

KPMG confirmed it recognized the former employee as a whistleblower last Friday, the day Yates resigned. Now offers whistleblower protections. An announcement KPMG made just a few weeks ago did not mention the former employee as a whistleblower.

It’s been a long slog for the whistleblower, who endured an internal investigation in 2024 that found no evidence of wrongdoing by the firm. This was followed by a “review of the internal investigation” by law firm Ashurst, which supported the initial findings.

The whistleblower took the only possible step in August last year by voicing his concerns to high-profile KPMG board members such as former NSW premier and current Cricket Australia chairman Mike Baird.

The Allens law firm was later hired for a separate external investigation, which eventually substantiated some of the 38 allegations.

What led to Yates and McPherson’s departure was an issue Allens brought up against KPMG staff last week. Highly sensitive Optus audit information was allegedly leaked to another team at the firm bidding for rival Telstra’s account.

Yates and McPherson won’t be the only ones leaving. As we know from PwC, many innocent staff can expect to lose their jobs if parts of the firm lose their jobs as a result of the scandal.

The NSW and Victorian governments have already announced they are reviewing their multimillion-dollar relationships with KPMG.

On Friday, the federal government said it would also scrutinize its contracts with KMPG, declaring it a “major incident” that the Ministry of Finance is assessing.

Last week, Department of Finance officials told the Senate they expected KPMG Australia had already warned it could be barred from participating in tenders after it repeatedly failed to notify authorities about wide-ranging allegations of misuse of client data.

And much more to come.

O’Neill is dragging everyone he can to a public senate hearing on June 19 to uncover more details about what exactly happened at KPMG.

The trial is expected to be as disturbing as the investigation that exposed PwC’s crimes.

“There’s a real awakening within corporate Australia that the practices they see being applied to government (by PwC) are being applied to some of the largest companies in the country,” he said.

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