KPMG Australia Governance Concerns Continue

In a series of reports last week, the Australian Financial Review examined continuing governance and whistleblower concerns at KPMG, including a new review commissioned by the firm and allegations involving Macquarie’s audit tender.

A review of KPMG’s whistleblower program by Andrews Group and former NAB whistleblower Dennis Gentilin found that a whistleblower had been mistreated. However, the review’s broader conclusions could only be framed as “hypotheses” because of limitations in scope and available evidence. The investigators were not permitted to examine KPMG’s culture or determine who was responsible for failing to protect the whistleblower, even though they said many of the issues identified appeared to stem from cultural factors. AFR columnist Hannah Wootton argued that the limitations echoed problems with earlier reviews conducted by law firms Allens and Ashurst.

The following day, the AFR reported that documents supplied to a parliamentary inquiry contained allegations that Macquarie director Michelle Hinchliffe, who spent 37 years at KPMG before joining Macquarie’s board, helped the firm prepare for Macquarie’s audit tender by advising on the expertise likely to matter and sharing information about the bank’s spending with the Big Four. Hinchliffe was also reportedly the only Macquarie director to attend management pitch meetings, despite having declared conflicts. Macquarie has acknowledged that some of her contact with KPMG personnel breached internal protocols, while maintaining that her conflicts were properly managed and the tender process was followed correctly. The bank ultimately decided not to proceed with KPMG and retained PwC.

Separately, the AFR reported this week that KPMG Chief Strategy Officer Dennis Krallis is leaving the firm for consulting competitor Synergy. Krallis had been given a senior role in KPMG’s response to the scandal, with responsibility for strengthening governance, culture, ethics, and internal controls. His departure comes amid a broader series of senior exits.

In a “Weekend Reading” article published late last month, Starling Founder & CEO Stephen Scott argues that the ongoing scandal at KPMG Australia presents a paradox of “inverted assurance”: an auditor retained to assure us of its clients’ reliability now requires those same clients to assure us of its own.

“A firm that cannot assure us of its own accountability can assure us of little else,” he wrote. “For a firm in the assurance business, such a failure ought to be existential. Yet KPMG is demonstrating why this may not always be so.”