KPMG’s latest ‘independent’ investigation brings deja vu
Barred from investigating KPMG culture
KPMG’s own review finds approach to whistleblowers ‘overly legalistic’
An independent review of how KPMG dealt with a former employee who alleged audit partners were misusing confidential client information to win work has found the firm systematically mistreated the whistleblower and buried his allegations in an ineffective conflict-ridden process.
A report into the firm’s handling of the allegations, which were largely substantiated after being raised in the Senate earlier this year, found KPMG failed to protect the whistleblower by taking a hostile and legalistic approach to protect the firm.
KPMG chairman Michael Ebeid and chief executive John Sams during a parliamentary hearing into the whistleblower’s allegations in August. Alex Ellinghausen
The firm also unfairly labelled him an aggrieved employee instead of properly investigating his claims.
KPMG chief executive John Sams and chairman Michael Ebeid apologised to the whistleblower – who was not interviewed for the report, compiled by consultancy Andrews Group – and agreed to the recommendations made in the review to improve the firm’s whistleblower processes.
“Senior people in our organisation behaved in a manner that was unacceptable and not in line with our values, and when someone had the courage to raise their concerns, we did not respond as we should have, and we did not treat this individual with the respect they deserved,” they said.
Sams and Ebeid also accepted that existing KPMG policies, and the firm’s approach to handling internal complaints, had failed.
“The Andrews Group’s report found that we adopted an overly legalistic approach, had deficiencies in our whistleblower program, failed to appropriately manage conflicts of interest, initially placed too much emphasis on workplace grievances rather than the ethical issues being raised and failed to provide the whistleblower with appropriate safeguards or support,” they said. “Ultimately, the report finds that KPMG failed to protect the whistleblower. We accept these findings.”
KPMG has been in crisis since the whistleblower, a former employee, resorted to having Labor senator Deborah O’Neill use parliamentary privilege to air his allegations in March. His claims included that audit partners used the confidential customer data of major companies and other insider information to win auditing work, then covered up the actions when he complained. Allens, which was asked by KPMG to review the allegations, has ultimately substantiated most of the claims.
The findings came from one of nine external reviews or investigations into the firm since the revelations.
Other reviews or investigations into aspects of the claims are being carried out by a parliamentary inquiry, the Department of Finance, the corporate regulator, Tax Practitioners Board, Allens, professional body Chartered Accountants ANZ, Principia Advisory and Kerry Schott.
The Andrews Group investigators, Dennis Gentilin and Ray Andrews, recommended KPMG establish a so-called integrity office that would be independent of client-facing work and run its whistleblower program.
The review also recommends that the firm improve a governance program known as the Ethics Champion Initiative, which tried to provide a pathway for concerns that did not go directly through human resources.
KPMG has already engaged Mallesons to review its whistleblower program.
The Andrews Group review also recommended that KPMG “advocate for legislative reform” to improve whistleblower protections. While the firm has accepted this recommendation, it says it has “a lot of work to do before we could be considered an exemplar in our industry”.
“The review was based on a simple but indisputable premise: KPMG Australia failed to protect the whistleblower,” the report reads.
“The basis for this premise is something the passage of time has made abundantly clear – the whistleblower, and many of their legitimate concerns, were not treated with the required level of respect and seriousness by KPMG Australia, leaving them with little choice but to seek recourse to external disclosure channels.”
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KPMG consultant admits to ‘gaps’ in its whistleblower report
The authors of a report designed to document KPMG’s whistleblower failings qualified their findings on the basis that they were unable to interview key staff – including the whistleblower – and found gaps in the accounting firm’s records of crucial meetings.
Boutique advisory Andrews Group, which penned the report published on Thursday, said it conducted interviews and relied on public and internal documents from KPMG, but admitted this exercise, “despite providing rich information, still left gaps”.
“Some individuals who were associated with and played a pivotal role in the disclosures were, for a variety of reasons, unable to be interviewed. This included the whistleblower,” they said.
The report found that KPMG adopted an overly legalistic approach to the complaints levelled against the firm and failed to uphold its core values, which led to the poor treatment of the whistleblower.
KPMG has been under siege after admitting that some of its staff accessed confidential information from corporate clients to win business – a serious breach of the trust in the world of auditing that is essential to the integrity of financial markets.
The consultancy confirmed that former employees associated with the whistleblower scandal were unable to be interviewed. The firm has yet to respond to this masthead’s question of whether current employees declined to talk to the report’s authors.
The report, which had been commissioned and paid for by the embattled accounting firm, noted there were multiple discussions, meetings and decisions within KPMG Australia relating to the handling of the whistleblower and their disclosures “for which records have not been kept”.
“Given these gaps, rather than document findings which would need to be unequivocal, hypotheses were developed,” the report’s authors said. These hypotheses were strongly supported by the weight of evidence and “therefore, despite not being proven or true, are difficult to refute”.
Andrews Group said the report didn’t have to determine accountability, but was meant to identify lessons to be learnt from KPMG’s failure to deal with the whistleblower allegations for almost two years.
The scandal cost it some of its most lucrative contracts, with Lendlease and Macquarie Group both dumping KPMG as their external auditor.
And it won’t be the end of the matter for the firm. The Australian Securities and Investments Commission told a parliamentary hearing last month that it is conducting its investigations in relation to the whistleblower scandal.
This includes looking into documents that KPMG had lodged with the regulator last year to determine if they contained any false or misleading statements.
“Initial inquiries are focused on the basis for statements made in that report, including the statement that there were no whistleblower complaints related to audit quality,” ASIC said in a submission to the parliamentary hearing last month.
The scandal first came to light in March – almost two years after the whistleblower made their initial complaint to KPMG – when Labor senator Deborah O’Neill read out the whistleblower’s allegations in parliament.
It led to an exodus of KPMG’s most senior executives, including CEO Andrew Yates and chairman Martin Sheppard, and also prompted the sacking of former chief operating officer Eileen Hoggett, who has lodged action to sue the firm.
Former KPMG board member Kim Lawry resigned, but is still negotiating her exit after an investigation found screenshots on her phone of confidential Lendlease board documents. She was due to retire last month.
KPMG reiterated its apologies to the whistleblower in the report, saying “senior people in our organisation behaved in a manner that was unacceptable and not in line with our values, and when someone had the courage to raise their concerns, we did not respond as we should have.”
The report made recommendations to help remedy KPMG’s whistleblower failings by establishing an independent integrity office at the firm, and appointing a dedicated whistleblower protection officer.
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Colin Kruger is a senior business reporter for the Sydney Morning Herald and The Age.Connect via email.
