Barbara Pocock (SA, Australian Greens) | Hansard source

I move:

That the Senate—

(a) notes:

(i) the resignations of KPMG's former Chief Executive Officer, Chair, Chief Operating Officer and National Managing Partner of Audit and Assurance as a result of substantiated whistleblower allegations that KPMG partners misused confidential client information to win audit work on multiple occasions,

(ii) that KPMG and those involved are presently subject to multiple investigations, including by the Parliamentary Joint Committee on Corporations and Financial Services, the Australian Securities and Investments Commission and the Department of Finance,

(iii) that KPMG has shown the Parliament and the Australian public that they are not up to the job, that they have failed basic ethical tests, that they are not fit for government work and that their ethical failures are particularly egregious considering the PricewaterhouseCoopers tax leaks scandal, and

(iv) that it is Labor's responsibility to act on the mountain of evidence and recommendations to meaningfully reform the auditing, assurance and consulting sectors; and

(b) calls on the Government to:

(i) break up and regulate the 'Big 4' firms,

(ii) penalise and ban unethical contractors, and

(iii) strengthen protections for whistleblowers.

Today I rise to speak about a troubling pattern of conduct that's further damaged public trust in one of Australia's largest professional services firms, KPMG Australia—a firm that made $2.3 billion in revenue last year. This is not a story about one mistake or one individual exercising poor judgement. It's a story of a laundry list of repeated ethical governance and accountability failures and years of cover-ups and obfuscation. It's a corporate culture that time and time again has prioritised commercial interests over the public interest. It's a story of established and repeated patterns of unethical behaviour.

KPMG's sins are multiple: senior partners misusing confidential client information to win lucrative audit work; breaches of audit independence; multiple instances of cheating on internal ethics exams; lying to the Senate about the firm not power-mapping when in fact they did; overcharging Defence while raking in billions of dollars; mistreatment and harassment of multiple whistleblowers, including Brendan Lyon in the TAHE matter in New South Wales and the more recent experience of a brave new whistleblower; attempting to use legal professional privilege to obscure the work of this parliament; and not notifying the Department of Finance of recent developments and incidents as required by their contractual obligations. And the list goes on.

Then we turn to the current architecture of the audit scandal. KPMG's misuse of confidential client information to win lucrative audit work—and this is very lucrative work—is one of the most egregious examples of misconduct to emerge from within an accounting firm in decades. What's worse is that this didn't happen just once. KPMG has confirmed that this happened multiple times. First there was the use of material from Lendlease's board papers, to which KPMG had privileged access as auditors, to assist an audit pursuit team with the Westpac audit. Second was KPMG's leaked Optus unredacted information to colleagues bidding for an audit contract with Telstra. Former CEO Andrew Yates said the confirmation of this leak motivated his decision to resign not so long ago. These revelations are made more concerning by the fact that KPMG provides corporate auditing services to seven of the top 20 ASX companies.

This latest KPMG scandal would not have been unearthed without the bravery of a whistleblower, who tried to raise these matters through the appropriate channels and nothing was done. They went to KPMG partners, to the head of audit, to the firm's senior leadership, to independent directors, to KPMG's international whistleblower hotline, to global leadership and finally to ASIC and ultimately this parliament, through the work of senators in this place, especially Senator O'Neill.

Last Friday the parliament heard, over a very long session—more than 10 hours—damning evidence of KPMG's toxic culture of retaliation, of establishing fear, of retribution and of the pursuit of profit at all costs. We heard how that brave whistleblower was threatened and retaliated against for speaking up about what was going on within KPMG. The whistleblower's laptop was accessed without their permission, without their knowledge, and KPMG dismissed this individual as someone with 'simple workplace grievances'. They targeted these as employment matters rather than legitimate whistleblowing disclosures.

And what happened within KPMG's so-called speak-up culture, much spoken of publicly by their proud leadership in recent years? A person who did the right thing spoke up, was shown the door and suffered horrendous personal, mental and career costs and no doubt enormous costs to their family and friends. They've since said that speaking out has had devastating consequences for them, and when asked whether they would do this again they said no.

KPMG said they did not make the whistleblower comfortable. They were very far from making them comfortable. They drove them out of the organisation, they subjected them to enormous pressure and they failed to treat their key whistleblowing information in the serious way they are obliged to do. That's one way for KPMG to describe it—that they did not make the whistleblower comfortable. Another way to describe what they actually went on to do was that they used multiple external law firms across multiple jurisdictions, circulating the whistleblower's identity in the substance of their protected disclosure within and beyond KPMG, causing retaliation and the end of the person's employment, and the coordination with member firms across the global network of KPMG.

Then we turn to the evidence of ASIC, who confirmed that they have numerous formal investigations underway into KPMG and those involved. Sarah Court, the new head of ASIC, said that this scandal is 'an egregious and serious breach of trust and honesty in this profession'. She also emphasised there are clear gaps in regulatory settings and that the Corporations Act needs to be extended to big partnerships. The latest resignations from KPMG are essential. But much more needs to be done to clean up the mess of unethical contracting, which is rife across KPMG, and the solutions need to be systemic. We need some key structural reforms. This is not an issue of one or two bad people who make their formal resignation and turn to the Australian public and say that the price has been paid by one or two individuals. That is not what we need here. We need systemic reform, specifically within KPMG but more broadly across the sector.

This is our third parliamentary inquiry into the big four firms. We already know what recommendations are needed. It's now time for the Labor government to implement them so we can properly regulate a sector that has gone rogue. We've got systemic recommendations out of two very thick and significant reports before this parliament, which provide an important guide to the way forward.

In a published statement to the committee, the whistleblower said that three things were, in his mind, essential based on where we are today. Firstly, regulation. Firms like KPMG are, in practice, left to regulate themselves—a billion dollars of revenue and self-regulation. They've shown themselves, over and over again, unable to self-regulate. If there's a prospect of a revenue bucket across the other side of the room, their ethics get wiped out on the path to get that money into their revenue coffers. This has created incredibly wide gaps that are being exploited to avoid accountability while maintaining an appearance of compliance; indeed, an appearance that they are exemplary in their treatment of whistleblowers in a speak-up culture—a speak-up culture that has toppled in this example multiple times, causing enormous personal harm to a whistleblower and no doubt enormous personal damage to many people who would no more think of acting unethically in the way that we've seen in this firm than fly to the moon. These are good people within KPMG who are damaged by the failure to take the responsibilities of self-regulation seriously. It's time we went beyond self-regulation to proper regulation and filled those gaps that allow these very large partnerships to have different tax regimes, different reportability, a failure to be transparent and accountable to the public and certainly inferior and very inappropriate attention to whistleblowers.

Secondly, we have to really look closely at ownership structures, as the whistleblower pointed out. Conflicts of interest are built into the big four model, and there are too many commercial incentives and pressures that create very significant conflicts of interest. Finally, and, of course, most importantly, we need whistleblower protections. Whistleblowers are key agents in assuring accountability and integrity. But they're subject at present, as we've seen, to very confusing laws, the little gaps in those laws and the big gaps in those laws that these very big partnerships waltz through to disadvantage our community, the regulation of our financial system and certainly the individuals who are trying to blow the whistle. We see the use of silencing tools like non-disclosure agreements and settlement deeds that prevent organisations from being held accountable for very serious and significant wrongdoing. We see retaliation against well-meaning and sacrificial whistleblowers.

In pointing to those three particular areas of reform, as this whistleblower does, regulation, ownership structures and whistleblower protections are spot on and on the money. We need to address these issues as we go forward. Greater protections for whistleblowers have been advocated for by so many people, over so many years, in Australia, including ASIC, the Greens, many parties and human rights advocates across our country. And there is tripartisan support for applying whistleblower protections to large audit, accounting and consulting firms.

The government also has to give greater practical support to whistleblowers. Whistleblowers need the support of independent resources and organisations to back them in, to give them support and to assist them to hold strong against massive institutional kickback when they do things that make them incredibly uncomfortable or hold them to account. They need access to civil remedies and financial compensation, particularly in instances where disclosures result in the imposition of a penalty on the relevant entity or organisation. So there's so much to do and so much that we obviously need to do. There's so much already before the parliament in these very comprehensive reports from two very longstanding and extensive inquiries into the big four and the consulting and audit sectors.

Two of the big firms, PwC and KPMG, have shown us they are not fit for government work. They have had the dubious honour of uniting the Australian parliament across the parties in the face of flagrant ethical breaches and misuse of confidential client information. PwC's primary sin—and there were multiple sins—was to use information provided confidentially in pursuit of economic benefits. So the business model of PwC trumped ethics at the first hurdle. And the lesson from KPMG is the same—the use of confidential information to monetise benefit. The really egregious thing about KPMG, on top of and different from PwC, is that their sins came after PwC's. They had seen the example. The lessons of it should have been obvious to anyone who's engaged in the big four system across our country, yet they came to the party here and committed exactly the same type of misdemeanour over and over again and also demonstrated other really significant losses, like the damage to a whistleblower and the repetitive cheating on exams—models of poor leadership and ethics that we should not be seeing in the wake of the PwC scandal.

It is this parliament's responsibility, but it is especially the Labor government's responsibility, to act on this mountain of evidence and the mountain of recommendations to meaningfully reform the auditing, assurance and consulting sectors. We have been too slow. Labor has been too slow to act on these important issues, and we're back here again with the second of the big four learning the same lessons. Well, let's not waste this really important opportunity for us as a parliament. I hope Labor will not waste this opportunity and will work with this parliament to get the changes in regulation, in structure and in whistleblowing and to impose really significant penalties so that those who misbehave, who take the Australian public for a bunch of mugs, get real punishment when the wheels fall off, when they capitalise and make money out of the use of information that is entirely unethical and demonstrates over and over again poor culture and poor leadership.

We have a really significant opportunity right now to drive reform. We can make the changes we need to. The Greens are ready to assist the government in any way possible to deal with these regulatory gaps and make sure that never again do the Australian public need to read in their newspapers or see in the media, day after day, about the failure of ethics and the failure of the responsibility of very large partnerships in the very critical business of audit and consulting, damaging the confidence of Australians in the institutions that are so important to our financial system and to our economy.