What's going on at KPMG?

What's going on at KPMG?

There’s been a story bubbling away in the news that’s set corporate tongues wagging about the goings on at one of the county’s biggest accounting/consultancy firms, KPMG. It’s to do with a former employee who blew the whistle on how the company was using the confidential data of its clients. Some of them are major corporations, and the fallout has led to a Senate inquiry and several execs being shown the door… So in this Squiz Shortcut, we’ll get you across:

• What the allegations are

• Why it’s getting so much attention

• And where things are up to…

🙋🏻‍♀️ This newsletter was written by Larissa Huntington and Sophie Felice

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Squiz the Shortcut

Let’s step it back a bit - what is KPMG?
It’s one of the largest accounting and consultancy firms in the country - they keep the financials of some of our biggest corporations and government departments in check. They employ around 10,000 Aussies and they’ve got an annual revenue of more than $2 billion. It’s a huge business, so when serious allegations were raised about the conduct of its senior staff, it caught a lot of people’s attention…

What do they do for their clients?
Aside from basic accounting, one of their other major services is auditing - that’s where they check company financial records to make sure they’re all correct and in order. They also give tax advice and offer consulting for businesses. Essentially, they act as expert advisors to help organisations run efficiently and above board…

So they’re trusted by them…
Exactly… They get access to the financials and strategies of major companies and government departments - so it wasn’t a great look when a former staffer blew the whistle and claimed that some of their own practices were very much not above board.

Which companies have been caught up in this?
Some major corporations - developer Lendlease, Westpac, property firm Dexus and telcos Optus and Telstra have all been mentioned.

Tell me about the whistleblower…
He’s a former executive who worked in auditing - his identity has not been made public. His claims are mainly centred around how senior staff at KPMG shared and used the confidential data of their clients.

What is he alleging?
He says that senior partners took highly sensitive, confidential boardroom documents from an existing client, Lendlease, and shared them with other staff to help KPMG pitch for new lucrative auditing contracts with other major companies including Westpac and Dexus. He also says that happened with data from Optus which was allegedly shared with staff bidding for the contract to audit its rival Telstra… 

Just explain why that’s an issue…
It’s because accounting firms have to keep strict ‘ethical walls’ between all of their different corporate clients. KPMG is accused of bypassing that rule and using confidential client information for its own ends to give it an unfair advantage when competing for new - often very lucrative - contracts. 

How did the whistleblower raise the alarm?
He initially brought his concerns to senior leadership in the company. But he says they downplayed them…And this brings us to the next part of his allegations against the company - that they mistreated him after he blew the whistle… 

What does he say happened?
He claims that instead of fixing what was going on, senior partners told him he’d have to move to another KPMG office overseas or his job would be terminated. He also says they accessed his laptop without permission and “pushed him out” around 7 months after he first raised his concerns.   

How did his allegations come out in public?
Labor Senator Deb O’Neill - she chairs the joint committee on corporations and financial services - aired them in a speech to parliament back in March under parliamentary privilege.  

What does that mean?
Under parliamentary privilege, politicians are protected from defamation or other legal action - for instance, any legal backlash that might come from someone breaching a non-disclosure agreement. And it not only covers the politician, it extends to the whistleblower as well…

So Senator O’Neill’s speech caught people’s attention?
It sure did… As KPMG audits 7 of Australia’s top 20 companies, allegations of professional misconduct meant a lot of people’s ears pricked up - and it’s not the first time one of our big 4 accounting/consultancy firms has been in the spotlight for the wrong reasons…

Go on…
Some Squizers might remember PwC, another huge firm, being in hot water over a tax leak a few years ago. That stemmed from when a senior partner at the company was helping the federal government to design new tax laws that were meant to stop big tech multinationals from dodging taxes. But instead of keeping the information secret, he leaked those confidential government plans to his colleagues. PwC used the insider information to pitch to a bunch of global companies, showing them how to bypass the upcoming tax laws, before they were even passed… 

What was the fallout from that?
It made the firm millions of dollars at the time, but when it all came out in 2023, it was one of the biggest corporate scandals in Oz history. More than a dozen senior staff were forced to resign and there was even a criminal investigation launched. 

Were charges laid?
No charges ended up being laid but the company copped fines which were deemed to be relatively small compared to the scale of the scandal. The real cost though, was in walking away from its government consulting arm of the business which it sold for $1 because it was essentially worthless after the government froze it out. That business was worth hundreds of millions of dollars, and the company also lost a heap of big corporate clients in the aftermath.

Did anything else happen as a result?
Yep… It led to tougher new laws being passed with more severe penalties for tax leaks. There were also calls for a Royal Commission into corporate greed, and the whole scandal sowed widespread public mistrust in the big 4 accountancy firms (KPMG, PwC, EY and Deloitte) that had built their reputations on keeping big businesses honest. We’re just a few years down the track, and this KPMG scandal hasn’t helped… 

Back to KPMG… How are things playing out?
You might’ve seen in the news that there was a Senate inquiry this week looking into the allegations, and it's heard that the company currently holds 297 government contracts worth $653 million. But in the words of the Greens, they “run towards the pot of money while dropping their ethics at the first hurdle.” 

Did the company cooperate with the hearings?
There were reports that the firm initially tried to cite “legal professional privilege” in an attempt to withhold information from the inquiry and keep the scandal quiet. But its top executives ended up facing the hearings - and the headlines came thick and fast, given several senior staff members resigned.

Who has gone?  
KPMG Australia’s CEO Andrew Yates and the head of its audit division, Julian McPherson, left at the end of May following an internal independent review of the handling of the whistleblower’s concerns. And this week, Chairman Martin Sheppard and 2 other senior audit partners left. 

What else has happened?
The company has been temporarily banned from bidding on Commonwealth contracts until the end of September, and it lost its $10 million a year contract with Lendlease which it held for nearly 70 years. In light of everything, the company has gone into damage control… 

Tell me more…
In a statement on Tuesday, interim CEO Stan Stavros acknowledged KPMG “did not meet the standards expected of us, and we recognise the impact this has had on the whistleblower, our people, our clients and the community”. He also noted the issues brought to light by the Senate inquiry, including, “unethical behaviour by senior personnel” and he said the firm “is focused on ensuring those failings are understood, addressed and not repeated”. 

So what’s next?
Some senior staff at the centre of the claims have been fined by the company, while externally, ASIC is investigating the conduct of several executives, and there’s also a full-scale review of its government contracts underway - so we could be seeing it in the news for some time yet… 

Onto our Recommendations

Perusing: This explainer from The Guardian which looks at the allegations against KPMG and some of the contracts it stands to lose.

Listening: This podcast from the Australian Financial Review takes a deeper look at the industry in light of the second big scandal in 3 years…

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