The federal government has extended its ban on accounting firm KPMG bidding for new government work until at least the end of February, following a review that found "serious ethical failings" by its leadership and some of its senior partners.
Ian Watt was commissioned by the Department of Finance to conduct an independent review into the Big Four firm, following allegations its audit partners misused client data then mishandled a whistleblower's complaint about it.
In response to Mr Watt's review, which was handed down today, the department said it has agreed with the firm to a further extension to the pause on KPMG bidding for Australian government work until February 28, 2027.
During this period, KPMG will provide the department with an implementation plan and the first of its quarterly progress implementation reports.
The department also needs to ensure that "KPMG is engaging constructively with the Australian Securities and Investments Commission (ASIC) and the Tax Practitioners Board (TPB) reviews, and is committed to addressing any recommendations that have been made by those organisations".
Dr Watt said in his review the way the accounting firm had handled the whistleblower's complaint revealed "serious ethical failings by some senior members of KPMG" and "significant cultural concerns within KPMG".
'Trust needs to be restored'
Dr Watt noted the review was focused on the leadership and culture of the firm "that had been warned on previous occasions about weaknesses in ethical culture, speak-up confidence and accountability, but did not deal with them with the rigour and urgency required".
He said since March, KPMG has undergone significant change, with a new chair and a new CEO, and a number of senior personnel having left the firm.
Dr Watt said the firm had also commissioned several reviews to understand the root causes of the events.
"Trust, however, is not restored through assurances alone,"
Dr Watt said.
"As was often observed during review interviews, trust takes time to build, and while transparency builds trust, lack of transparency damages it."
Dr Watt said his report should not be read as a judgement on every member of KPMG.
"Virtually all of KPMG's staff had no involvement in the events that occurred," he said.
KPMG CEO John Sams and its chairman Michael Ebeid said they accepted the findings and recommendations of Mr Watt's review.
John Sams says the firm is working to revamp its internal culture. (Supplied)
"The report lays bare our failings and highlights the hard work that we must do to address them," they said in a statement.
The firm had appointed Kerry Schott to provide independent oversight and said "while we are making important progress, we know that changing culture takes longer than changing individual roles, structures or controls".
"Confidence in KPMG's suitability for Commonwealth work must be earned through evidence of effective, lasting change," the statement said.
Call to overhaul code governing bids
Dr Watt also recommended the department of finance strengthen the Commonwealth's supplier code of conduct, including tougher sanctions for suppliers breaching their obligations and more reporting pathways for potential unethical behaviour.
Several states and territories have also banned KPMG from taking on public sector work pending the outcome of Dr Watt's review, or their own reviews.
They are working through their responses to the findings.
Greens finance and public service spokesperson Senator Barbara Pocock said a small extension of the freeze on KPMG contracts was not dealing with the issue.
"At a time when some of Australia's biggest corporate players like Lendlease, Macquarie Group and ANZ have sacked KPMG as auditors, why would the government consider letting them back in the fold?" she asked rhetorically.
"It should instead be setting the standard on probity amongst its contractors.
"If any ordinary worker or company was caught using confidential information for gain, cheating on an exam or mistreating a whistleblower, you'd be out on your ear, dismissed in a flash."
Barbara Pocock says KPMG should not win new government work. (ABC News: Callum Flinn)
Senator Pocock said the federal inquiry into the KPMG audit leaks scandal had heard revelations of 153 reports of misconduct to regulator ASIC in the past three years in the Big Four firms, and among them 48 potential whistleblowers making complaints.
"The sheer volume is alarming and confirms there are serious problems within the Big Four in relation to misconduct, some of which have already surfaced," Senator Pocock said.
"This suggests there's a lot more going on and this must be investigated."