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Scrutiny landed on KPMG’s first investigation into whistleblower allegations after the parliamentary joint committee questioned a limited interviewing process, finding that it was said that “there is no such thing as a Chinese wall”.
It was revealed at the parliamentary joint committee on corporations and financial services at the KPMG ethics and accountability public hearing on Friday (14 August) that the big four firm had not relied on staff lower than the partner level due to a host of reasons, despite its outgoing general counsel saying they would have done things differently.
Allens partner Christopher Kerrigan confirmed with the committee: “We didn’t interview in our first investigation people below partner level in relation to the Lendlease board paper allegation.”
When questioned as to why KPMG allowed this to happen, resigning KPMG general counsel Louise Capon told the committee that they had discussed this with their legal representatives, and came to the conclusion not to.
Capon said that with the benefit of hindsight, they should have done things differently.
KPMG deputy chair Carmel Mortell told the committee that she apologises for this, and in hindsight, she would have called for interviews with junior staff.
Former chief executive Andrew Yates said the decision was not to interview junior staff, as it would intimidate younger staff.
“I just gotta challenge this hindsight excuse because it was in the charter. It was explicit about what you had authorisation to direct the law firms to do in terms of having access … it was set out,” Senator Tania Lawrence said.
Further, Senator Deborah O’Neill noted that there is an interview recorded in a file note of 25 November 2024 about James McClelland interviewing a person with information relevant to the investigation.
O’Neill noted that in an interview, there was a question of Chinese walls, or ethical walls.
She noted that during the interview, it was said, “There is no such thing as a Chinese wall.”
Westpac board audit committee chair Michael Ullmer told the committee: “I think that’s a ridiculous statement to make because there obviously have to be Chinese walls or ethical walls.”
“Whether it’s in the auditing profession, the legal profession, or investment banking, on the one hand, as clients, you value dealing with professionals who have experience in your industry.”
“You expect that the confidential information, the secrets that they gain access to, will remain confidential and only be in a sense of building their sort of general knowledge of what happens across rather than referring to matters specifically.”
Ex-KPMG Australia chair admits process failure in audit scandal
The former KPMG Australia chairman, Martin Sheppard, has acknowledged that the “end-to-end” processes implemented in the investigation of whistleblower allegations of audit misconduct did not deliver the required outcomes.
Sheppard appeared at the parliamentary joint committee on corporations and financial services last week (14 August) for the oversight of ASIC, the takeovers panel, and the corporations legislation. The hearing is scrutinising the accounting firm’s ethics and professional accountability over its audit practices and the treatment of whistleblowers who disclose misconduct within the firm.
During the hearing, Greens Senator Barbara Pocock questioned each partner on whether they individually accept responsibility for the initial investigation of the whistleblower’s allegations being “essentially completely inadequate” and “very, very far from robust”.
The question was particularly pertinent as O’Neill pointed to a “pivotal” email written by former chief operating officer Eileen Hoggett to her personal assistant, where she refers to the confidential documents relating to the Lendlease audit, which were retained in a locker at KPMG’s Sydney office.
The email from May 2023 said: “I think we confidently allow him to look at the printed version in my locker when he [director on the Lendlease audit] is back in Sydney. He needs to do it sensitively without letting too many people know [smiley face emoji].”
O’Neill said this email has “contradicted a long denial that there was the sharing of confidential information”
Given the disclosure that this email proof was available in the records as the investigation unfolded, Pocock asked the former partners how they view their leadership in relation to the long period the public had waited to know what really happened at KPMG Australia.
Sheppard responded by referring to an announcement on 30 May where he apologised to clients and others “that this process had taken too long and hadn’t got to the nub of the issues quickly enough, that we hadn’t given enough attention to issues raised by the whistleblower”.
“I stand by all of those today,” Sheppard said, adding that he listened with interest to the perspective of their clients like Westpac, Macquarie Group, Optus, and Dexus, who also appeared at the hearings.
“Frankly, I don’t disagree with their perception of things. I think end-to-end, our processes didn’t deliver the outcome that we needed to. As the chair of the board, I have had a governance responsibility for that overall, even though I wasn’t part of the subcommittee that had carriage on it, but I absolutely had that responsibility. I think with the benefit of hindsight, there were lots of things along that process which needed to be better.”
Sheppard also admitted that there is a “difficult tension” between partner-directors and independent directors on the firm’s board. He said he has always “grappled” with the challenge around the fact that there is no framework that governs partnership. Instead, he said that “the overriding instrument that the partnership is beholden to is the partnership agreement”.
“By virtue of that construct, as with the law firms, the senior partner or chair has been the primary governor of that instrument. I do feel that the professions work hard over many years to try and bridge that gap, anticipating what might be better,” Sheppard said, noting that the firm has tried appointing independent directors.
He added that the move by KPMG Australia to appoint an independent chair and have independent representation on the board is a “step in the right direction”.
“But I would make the point that there still is no clarity around what the governing body of the profession is,” he said.
O’Neill retorted that she would never be able to hear the word “independent” in the same way again, after what she called the “abuse” of the term and given the allegations levelled against the accounting firm by the whistleblower.
Greens senator calls for regulatory reform at the big 4 accounting firms
Following the hearings, Pocock slammed KPMG leaders in a statement for being “gold class exemplars” of greed trumping ethics at every turn, and said KPMG is “morally bankrupt”. She added that the hearing reinforced the case for a major revamp of governance, regulation, surveillance, and penalties at the big four accounting firms.
“The big four’s governance is a farce. They have lost their social licence, and they cannot be trusted. Self-regulation has failed. It is time for root and branch structural reform,” Pocock said.
“Labor needs to put an end to their special treatment on board rules and regulation, tax, public reporting, professional liability and whistleblower protections. The government must review all contracts with KPMG and ban them from government work. They must break up and regulate the big four, and increase penalties for dishonest behaviour and ethical failures.”
