KPMG Begins to Pay for Its Mistakes

analysis

Topic:Company News

KPMG will be questioned again on September 4.

Things are happening as expected for KPMG, which is under pressure.

The company is paying for some bad decisions.

Top leaders have spoken in painful hearings before a parliamentary committee.

The government may ask accounting firms to separate consulting work from audit work.

Each hearing has revealed new painful facts, apologies for earlier false statements, and attempts to hide clear mistakes.

The problem is not caused by junior staff cutting corners, but by senior executives earning over $1 million who made terrible choices.

Here are a few examples.

CEO Andrew Yates quit after downplaying a whistleblower’s claim that staff used client data to win contracts.

Chair Martin Sheppard was also asked to step down.

He probably did not realize his long questioning was an exit interview until the committee’s press conference said he must leave.

Five former KPMG partners were questioned in Canberra: Julian McPherson, Kim Lawry, Martin Sheppard, Andrew Yates and Eileen Hoggett.

Parliament heard that senior partner Kim Lawry had a screenshot of a confidential Lendlease board paper on her phone.

Almost 30 years at the firm, she could not remember if she took the screenshot, sent it, or knew it was confidential.

Eileen Hoggett, a possible next CEO, had denied a whistleblower’s claim that she kept secret Lendlease documents in a locker.

The committee then found an email to Ms Hoggett’s assistant that contradicted her denial.

In that email she told her assistant to let another senior staff member look at the confidential files quietly:

"He needs to do it carefully without many people knowing," Ms Hoggett wrote, ending with a smiley emoji.

KPMG has been under scrutiny for months over how it handled a whistleblower complaint.

Executive director James McClelland was almost in tears as he told the hearing how KPMG dealt with the whistleblower.

Mr McClelland said KPMG failed to act quickly, gave misleading answers, and did not tell the truth in interviews.

It was emotional and intense.

But it was too late. Mr McClelland had written harsh letters to the whistleblower, which made new chair Michael Ebeid feel uncomfortable.

Mr McClelland apologized but said he was following firm instructions.

It's very clear.

These are serious people who can no longer be taken seriously.

More problems will come for KPMG and the other big‑four firms.

KPMG faces issues from the past, present and future.

Former tax commissioner Chris Jordan is accused of taking secret commissions while at KPMG in the 1990s, according to ABC documents.

Macquarie Group will drop KPMG as its auditor because of the ongoing scandal over confidential data and contract‑winning methods.

That decision has led to staff cuts.

The cuts are not in the audit division, because there are already worries KPMG lacks enough auditors for its contracts.

The Macquarie audit contract is Australia's most valuable, worth $700 million to $1 billion over ten years because of the group's complex operations.

KPMG won the contract in 2025 but had not started; it will now stay with PwC Australia, which held the contract for many years.

In his August 14 testimony, chairman Glenn Stevens said Macquarie still has time to remove KPMG as auditor.

Macquarie announced KPMG will be dropped from the audit contract amid ongoing scrutiny of its audit practice.

"We expect information soon and the board must decide whether to keep KPMG or reconsider the decision," former Reserve Bank governor said.

That would have been a long meeting.

One of the nation’s most aggressive financial institutions, publicly embarrassed by a client demanding payment for certification?

Come off it: booted.

It is unlikely to be the last removal; such contracts usually involve a bidding panel that assesses firms.

Which corporate governance officer will approve a deal with KPMG while it is banned from new government work? When will more revelations appear? While it cuts hundreds of staff and partners?

After the KPMG audit leak, leaders from Macquarie, Westpac, Optus and Dexus questioned their trust in the auditor.

More scrutiny is coming.

Recent parliamentary hearings ran over time, so ASIC could not appear. The regulator will finally speak on Friday.

KPMG’s new CEO John Sams expressed deep regret when Macquarie announced the drop, calling it a reminder that past failures have real consequences.

"Rebuilding trust needs steady action, openness and time. I will lead this change with honesty, openness and urgency," he said.

Unfortunately, the most notable action by new chair Michael Ebeid so far is apologising for a harsh internal email he wrote.

In that email he attacked the whistleblower and accused senator Deborah O’Neill, chair of the committee, of lying to the Senate.

What a fresh start.

The other big‑four firms are not bragging about clean records.

They are staying quiet, hoping new laws for more scrutiny and transparency will not hurt their huge profits shared with highly paid partners.

PwC shows there is no certainty.

But ignore the existential crises. Let’s focus on the main point.

In 2023 PwC Australia faced a scandal for misusing confidential information about future tax plans for multinationals.

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By the end, PwC Australia was a shadow of itself, with about a quarter of staff moved to a new company, Scyne Advisory, created to isolate ongoing government contracts.

The funders bought it for $1, taking on huge debts and employee entitlements, hoping to keep the contracts and get more.

It is no longer part of PwC Australia.

Even last year PwC Australia staff fell another 5 % to 6,131, partners down 8 % to 575, according to its latest annual report.

KPMG has long contracts with the defence department, but its chances of winning large new work soon are uncertain.

You would think its prospects are very poor.

Dexus was involved in the KPMG scandal—not its fault—when confidential data from other firms was used in KPMG’s successful audit bid.

Chair Warwick Negus summed up the whole KPMG mess nicely in his testimony.

"We are disappointed by what we understand at the moment," he said.

"And that understanding continues to grow."

It will likely grow further on Friday when the Parliamentary Joint Committee on Corporations and Financial Services holds its next public hearing in Sydney, continuing to examine wrongdoing in Australia’s powerful firms.

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