'No assurance': Watt points that finger at government in KPMG report

By late May, Finance officials' concerns about the firm had deepened. Picture by Shutterstock

Federal agencies handed KPMG millions of dollars after the government slapped a ban on new work with the embattled consulting firm.

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KPMG has started a change program to root out any unethical practices, but the ban on government work will continue into 2027.

These are the findings in Dr Ian Watt's report on KPMG that will grab headlines and create ructions across the professional services industry.

But there was a much more unsettling finding buried in the document published on Thursday, October 22.

"There are currently no assurance mechanisms in place within the Commonwealth procurement framework to provide confidence that all potential significant notifications or non-compliance with the code are being identified and effectively managed," Mr Watt wrote.

"There is a significant risk that, in the absence of greater coordination across Commonwealth, some unethical suppliers will continue to win Commonwealth contracts."

It means that lax government oversight could be allowing firms to do the wrong thing while living off the taxpayer dollar.

And the Department responsible - the same department that commissioned the report - has not yet agreed to change its practices.

The Watt report showed how this lax oversight played out in the KPMG whistleblower scandal, after allegations revealed that staff in its audit division likely misused confidential client data to win multimillion-dollar contracts.

Finance officials sought assurances from KPMG in late March regarding the allegations and any potential implications for government agencies.

KPMG staff responded about a week later that the firm "had not substantiated any wrongdoing and did not anticipate adverse implications for Commonwealth engagements."

By late May, Finance officials' concerns had deepened, despite ongoing meetings and correspondence with KPMG.

"Finance continued to learn of further allegations through media reporting and parliamentary material, rather than through direct and timely disclosure by KPMG," Mr Watt wrote.

"Material before the parliamentary joint committee, including Lendlease correspondence, appeared to describe conduct involving confidential information in terms that appeared inconsistent with KPMG's earlier advice to Finance.

"Questions remained about the adequacy of KPMG's governance response, including the role of independent directors, handling of the whistleblower complaints."

These and other findings led Mr Watt to recommend that Finance strengthen the supplier code of conduct framework so it can apply tougher sanctions to suppliers with integrity issues.

Measures should be put in place so that firms and agencies share more information about potential instances of unethical conduct, he wrote.

Finance's response to the report was immediate.

It agreed to most of Mr Watt's recommendations about putting further controls around KPMG's work with government.

The Department only "noted" recommendations to strengthen the government's oversight provisions around the supplier code of conduct, without agreeing to them.

In an updated procurement policy note, federal agencies have been barred from entering into new contracts with KPMG before March 1, 2027.

Finance has tightened provisions around variations, amendments, and existing tender proposals for work from KPMG.

Finance placed KPMG on a three-year monitoring framework requiring quarterly progress updates on its cultural and governance reforms.

It warned any failure to implement corrective actions would trigger an immediate reinstatement of bidding bans.

KPMG Australia CEO John Sams and chairman Michael Ebeid said in a joint statement that the firm accepted the findings of the independent review and the recommendations that related to KPMG.

"We recognise that confidence must be earned through evidence of effective, lasting change and are committed to acting on the independent review's recommendations, along with full and transparent implementation of the other activities identified in our action plan," the spokesperson said.

"The report lays bare our failings and highlights the hard work that we must do to address them.

"Against that background, we were heartened by the whistleblower's statement in the review: 'my absolute observation is that 99 per cent of people at KPMG are really good; I know that serving the public interest and serving the Australian Government is something they take seriously and passionately.'

"This is an important reminder of what the firm must protect.

"It also identifies the strong foundations from which we can build - namely, our people."

Mr Watt echoed those comments about the majority of KPMG's people and their conduct in the report.

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