Barbara Pocock (SA, Australian Greens) | Link to this | 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.

Paul Scarr (Queensland, Liberal Party) | Link to this | Hansard source

I'll first observe your role, Acting Deputy President Colbeck, in relation to the examination of matters relating to PwC. I acknowledge the service which you've provided through your committee memberships, in terms of exposing that dreadful, egregious conduct. And here we have, unfortunately, another piece of egregious conduct, this time engaged in by senior—that must be emphasised—members of KPMG.

At the outset, I'd like to acknowledge Senator Barbara Pocock's passionate pursuit of these issues and her forensic examination at the committee hearing last Friday. I think Senator Pocock has provided great service to the people of Australia, in terms of pursuing these issues, and I commend her for it. I also agree with Senator Pocock that there is a need for reform, and I'll provide some comments in that respect in my remarks. I'd also like to acknowledge Senator O'Neill, of course, who has provided outstanding leadership of the Parliamentary Joint Committee on Corporations and Financial Services.

This has to be emphasised: but for the fact that Senator O'Neill took seriously the disclosure made to her by the whistleblower—and, through Senator O'Neill, to the Parliamentary Joint Committee on Corporations and Financial Services—this matter would not have come to public light. But for the fact that a Senator in this place had to give a speech in the Australian parliament, KPMG would not have taken appropriate action. The chief executive officer of KPMG would still be in his position. The chief operating officer of KPMG would still be in her position. The head of audit would still be in his position. The relevant audit partners would still be in their positions. The chairman of the board of KPMG Australia would still be in his position.

But for the fact that the whistleblower made the relevant disclosures and Senator O'Neill gave that speech in March of this year—but for the fact that the whistleblower blew the whistle—ASIC wouldn't be engaging in the investigations it's engaging in now and Chartered Accountants Australia and New Zealand wouldn't be engaging in the investigations they're engaging in now. A whole raft of other responses wouldn't have been set in train.

We've got to ask ourselves the fundamental question. What is wrong with the system when someone who is seeking, and is doing, the right thing, within, in this case, KPMG and is trying to get their concerns taken seriously, both within KPMG Australia and by going through appropriate avenues to bring it to the attention of KPMG International—why did it take Senator O'Neill giving that speech for this matter to come to light?

That is the reason why reform is necessary, and this reform is urgently required. Why? Because the whistleblower has told us that if they knew, back when they made their initial disclosure, what they would be going through over the last 12 months—the personal toll, the financial toll and the toll on their career—they wouldn't have blown the whistle, because of the huge cost they have incurred. That's not good enough. There are systemic failures that must be addressed.

I think—and Senator O'Neill has made this point repeatedly—that the audit function is integral to trust in our financial system. From large superannuation funds to listed public companies to government owned entities, audit is absolutely crucial as a function. It's a key check and balance in our financial system, and it provides everyone associated with the financial system, including investors, shareholders and creditors, with confidence in the system. Once you undermine that confidence, you are undermining trust in our financial system.

We heard the gravity of the situation in the comments made by the chairman of Lendlease, who said, in essence—these are my words, not his—'Given KPMG used our information the way they used the information, in breach of the terms under which they were given that information, how can we trust KPMG? They've undermined our trust.' Lendlease has moved to terminate the engagement of KPMG as its auditor after over 60 years. That, to me, underlines the importance of pursuing these issues.

The second point I'd make is that it is clear there are huge gaps in our regulatory system. KPMG is a large partnership, and our corporations law is simply not fit for purpose in regulating a large partnership and holding to account those in large partnerships who are engaging in misconduct. Reform is necessary; there's no doubt about that. That reform extends to the provisions in the Corporations Act relating to whistleblower protections, because in a situation, as was the case here, where a whistleblower is hired by a service company, but that service company is part of the puzzle of a large partnership, there are serious questions as to how the provisions relating to protections for whistleblowers respond. I personally believe there are good arguments that those protections did apply to the whistleblower, given the whistleblower was hired by a service company. That's my view. But there shouldn't be any doubt about this. It was absolutely shameful. I said this last week in my questions directed to the leadership of KPMG, and I'll say it again: it was absolutely shameful that KPMG presented the situation as if it was the whistleblower's fault that the whistleblower didn't provide information when KPMG asked, without emphasising the fact that KPMG could not or would not give comfort to the whistleblower that they had the benefit of those protections under the Corporations Act. That was absolutely shameful. I say that again here this evening.

So there are gaps in the regulatory regime. What the actual regulatory response to that should be is still, in my view, with all due respect to Senator Pocock, somewhat of an open question. There must be one. There must be reform. There must be change. This must never be allowed to happen again. I agree, and I'll passionately advocate in that regard. I commend Senator Pocock for bringing this motion forward to provide me and Senator O'Neill, whose contribution I'm looking forward to, the opportunity to provide remarks in relation to this matter. There needs to be reform. There needs to be change. Whether that means a break-up, which is the phrase used in the motion, or whether there's some other reform needed here, there certainly has to be reform in terms of the regulatory oversight so that ASIC has appropriate authority to regulate large partnerships such as KPMG. But what that reform actually looks like is still an open question in my mind. I'm sure it's a question which we as a committee will be pursuing over the course of the next few weeks.

I say to the government that they don't have to wait for us. They should be looking at this now. I do note there's a Treasury consultation paper open on whistleblowing laws. It's good that there is, and I'll make some comments in relation to that in a moment. The government needs to get moving on this. We can't let this happen again. And it's not just the responsibility of the Labor Party. Labor's in government, but I think it's the responsibility also of everyone in this chamber, including the coalition, including my party, the Liberal Party, in this place to make sure we engage constructively in relation to this reform process. Reform must occur. There's no question about that. There must be reform, and all of us need to constructively engage in that.

The last area I want to talk about is the whistleblower. Once again I place on the record: thank you to the whistleblower. In my view, whistleblowers are the great civic heroes of our society. They're the people who, at great personal cost, are the ones who step forward when others don't. When others either engage in misconduct or are prepared to turn away from that misconduct and not raise red flags, the whistleblower is the person with the courage to step forward and to make sure that the egregious misconduct comes to light. This whistleblower should be congratulated for that.

But it's not enough for us just to do that, just as it wasn't enough for KPMG to say on a mere piece of paper that they were sorry. It doesn't cut it. We must introduce protections for whistleblowers. Whistleblowers deserve a standalone statutory authority, a whistleblower protection authority, that is there to serve their interests and to look out for them. This whistleblower was left adrift. KPMG could go out and hire the biggest commercial corporate law firms Australia has—and they hired a number of them. KPMG International hired some of the leading Magic Circle firms to provide them advice. We found out last Friday that some of the people who have resigned, who admitted that they could have done better, had the benefit of their own independent legal advice, paid for by KPMG. But what about the whistleblower? Who's in the whistleblower's corner? Who's standing up for the whistleblower? We've done our best, but there needs to be a standalone regulatory authority that's there in the whistleblower's corner from day one.

I want to quote from a exchange I had with Mr James Shelton, a whistleblower who blew the whistle in relation to the foreign bribery offences committed by Securency and Note Printing Australia; they basically went overseas and bribed overseas officials to use Australian technology in terms of banknotes. James Shelton is an Australian hero who blew the whistle and suffered terribly for it. In an exchange I had with him in relation to amendments to the public interest disclosure legislation, I asked him about the need for an independent whistleblower protection authority. I want to end this contribution with his words: 'An independent whistleblower protection authority which could provide a guide, a way forward and a pathway on what you will experience, what's going to come up and what you will feel, and also provide some support services, would have made the world of difference to me. It's too late for me, but for others who come after, yes, 100 per cent, there needs to be an independent whistleblower protection authority that covers both the private and public sectors.'

It was too late for James Shelton. It's now too late for the KPMG whistleblower. It should never be too late for future whistleblowers. They should have the benefit of a whistleblower protection authority. They should have the benefit of that support. They should have someone standing in their corner as they go on this journey of doing right, acting in the public good for the benefit of all Australians. Each senator in this place, in my view, owes them a moral obligation to make sure that this reform occurs and that whistleblowers in the future have the benefit of a whistleblower protection authority standing up for them and protecting their interests.

Deborah O'Neill (NSW, Australian Labor Party) | Link to this | Hansard source

This is a speech that you would hope you wouldn't have to make in the country in which we live. I know your contribution through F&PA, Acting Deputy President Colbeck, as the former deputy chair, has been acknowledged by your colleague Senator Paul Scarr as important in revealing some of the appalling practices that seem to live and thrive in a toxic culture that has now been revealed at both PwC and KPMG in the public space. I acknowledge once again, and it's the second time this evening I've been able to speak happily about, the collaborative nature of important work we can do for our country in this place, the Parliament of Australia and the Senate of our nation.

When I arrived here, I was truly humbled to walk through the doors of this place and serve the country that my parents came to—as immigrants; that debate rages—with very little education and very little opportunity. They came to a democratic country where the rule of law is respected, operates and provides incredible levels of opportunity and protection for the Australian people. That's what we want to happen here. I acknowledge the great contributions of my colleagues who are sitting here on the Senate floor alongside me, Acting Deputy President Colbeck. Senator Scarr has just made another profoundly important contribution to thinking about what we do as we go forward in response to the problems that are becoming manifest to Australians. We've been working on this for a very, very long time on the Joint Committee on Corporations and Financial Services. I want to also acknowledge the crossbench in a way that is not commonly reported in the public. I have been working so closely with my colleague Senator Barbara Pocock on both the F&PA committee and also on the corporations and financial services committee to do the work that we have done to bring what can only be described as a very dry subject into the public realm.

At the heart of why we do this is the question that needs to be asked: why is this important? It's in the answer to that question that we will find our resolve to undertake the necessary change. Why is this matter important? I think Australians are beginning to wake up to why it is so important for them that we do this work, that we do it carefully, that we do it collaboratively and that we do it in a time sequence that is responsive to the challenge that is there but not in a rushed and haphazard way filled with outrage and alarm. Good governments of any persuasion take the task of reform seriously. They consult. They do the very best they can to bring things forward. That is the way that I think we need to proceed with this matter.

The reason that what we are talking about matters—about those four little letters on the Notice Paper today, K-P-M-G—is because Australians now have $4½ trillion under management because of our superannuation system. It was a great development for Australia that a Labor government established the superannuation system. Now every working Australian has a share in the future wealth that is generated by investment in a range of companies both in Australia and overseas.

Whether you're managing your own superannuation in an SMSF, or perhaps you've got money and have just started your first job and you've got a thousand dollars being managed by your industry super fund, or you are in a retail fund and having some choices about what's going on by negotiating with a broker about what you want to do, all of the decisions, no matter how your superannuation is invested, rely on the truth of the documents that are provided by these massive companies in which we are all invested. What has been shown to occur in the case of the KPMG matters is that the people who are supposed to verify the authenticity of those books on which decisions are made and that basically the financials are accurate—those people called auditors in a position of profound trust and centrality to the proper functioning of the markets—have not been operating in anything that approaches an ethical disposition.

We have seen evidence of profound breaches of professional responsibility by these auditors who are given huge access to what's going on in the companies. We've referred to Lendlease. Senator Scarr mentioned the leadership of Lendlease talking about how they felt when they found out, after the fact, about how their confidential information was used. KPMG shows up as an auditor, and, as is required by the law, Lendlease had to open all of their books for inspection. Mr John Gillam, Lendlease's chairman, described the misuse of confidential client information by KPMG as 'a grave misuse of their access privileges'. He says, 'We were deeply disconcerted.' Now 'grave misuse of access privileges' means that when KPMG went in, instead of acting to see everything and then retreat quietly without sharing anything that they had seen in any way with anyone else, they failed. Absolutely and totally, they failed. They took information away with them. Not only did they fail in taking that information which should have been confidential; they then sought to use it for their own advantage. It's this pursuit of money, this pursuit of some prestige that apparently they think comes with money no matter how you get it, that is driving the sorts of behaviours that are now becoming known to the Australian people.

I found it extraordinary when reports from my office and also from members of the media who have been covering this indicated that upwards of 78,000 people had watched the YouTube video of a hearing on Friday. It's an extraordinary indication of interest in what is happening in this place. It wouldn't have ever got to that point but for the courage of an individual who was inside KPMG. No matter what they were promised—no matter the lure of millions of dollars, potentially as a partner—the moral fibre, the moral fortitude, the discernment and the ethical disposition of the whistleblower, who saw egregious behaviours of theft of information, sharing of information and basic lying to their own clients, meant that the whistleblower had courage enough to put forward a document.

So here we are. It's June 2026. This journey started for that whistleblower in 2022-23. By 30 May 2024, the whistleblower had determined that this matter could not go unaddressed and wrote to a senior audit provider, one of his direct reports, about failures of audit quality with regard to Dexus, Telstra, Macquarie Bank, Westpac, SingTel Optus and of course Lendlease, to whom I've been referring. Without the courage of that whistleblower to document what had been observed, we would still not know that one of these big four entities, so vital to the success of our financial markets, had done what they'd done. That careful document was basically used inside KPMG not as an opportunity to be appalled at what was being reported but rather as a document to be managed, and the person attached to it, our whistleblower, was turned into a person to be managed.

Many people don't know much about these big companies or about what an office of general counsel is. I certainly didn't have anything to do with that world before I came here. But a lawyer inside a big company is a common thing. That's what a general counsel is. In this circumstance, the office of the general counsel was used as a tool to silence the whistleblower. We know that, within a couple of days of material being proffered by this whistleblower to his direct report, his own laptop was searched without his permission. And that pattern goes on.

In addition to using the office of the general counsel to silence this person, we find later on in our hearings that, when frustrated by all of the processes inside KPMG, the whistleblower goes to the independent directors and there's a not-virtuous circle established by none other than the chairman of the board, who tells the independent members: 'If you hear from the whistleblower, jump up and talk to the office of the general counsel.' Again, it's another tool of oppression, another tool to silence the whistleblower in the most disgraceful way. That is just one tiny chapter of the volumes of information that we have received about failures inside KPMG.

Critically, there is a massive failure in terms of the structure of these companies and the way they have been allowed to operate. I'm very proud of the work that we did, and I see my two very engaged colleagues sitting here with me. We had 40 recommendations in the report that we advanced about how we might move forward. I know that there was one contentious matter for us, and that was about how many partners there should be. There are a thousand people that are all in on what KPMG did, because that is the level of partners you can go up to. We know that it's about 680 at the moment, but the upper level is a thousand. That's a thousand partners who are not governed in any way by ASIC or any federal entity or anyone who has reached into that partnership. We know that ASIC can capture a few company auditors. That is a critical breaking point in the proper supervision of those who are in these positions of profound responsibility.

There is so much more to say. We have so much more work to do. This is not an end point for us but rather a renewed and invigorated commencement of making sure that the reform that needs to be undertaken is undertaken, and the committee will continue its work.

Debate interrupted.

Senate adjourned at 17:30