KPMG scandal: Westpac exec accuses audit firm of ‘drip-feeding’ shocking revelations

A May 2023 email showing former KPMG chief operating officer Eileen Hoggett allowed a colleague to inspect rival audit pitches kept in her locker has been read out for the first time, undercutting the accounting giant’s repeated claim that it found no evidence supporting a whistleblower’s central allegation.

A parliamentary inquiry is investigating claims KPMG partners misused client secrets, breached conflict rules and shared sensitive material inside the firm while chasing lucrative new work from some of Australia’s biggest corporate names, including Westpac, Macquarie, Optus and Dexus.

Labor senator Deborah O’Neill said on Friday the inquiry was now hearing from a growing number of KPMG whistleblowers alleging similar conduct inside the firm.

“There are many, many more who are contacting us, and they are talking about a repeat of the same behaviour,” Senator O’Neill said on Friday.

The Lendlease locker documents

At the centre of the scandal are Lendlease board papers KPMG had access to through its work as the property giant’s auditor, including commercially sensitive details of rival EY and PwC pitches for the audit.

A whistleblower alleged KPMG partners printed and circulated the material inside the firm, giving colleagues chasing other major clients insight into how rival accounting firms pitched for work.

As recently as April 30, KPMG told Parliament its investigations had not substantiated that allegation.

The inquiry on Friday produced the May 2023 email showing a KPMG audit director who had worked on Lendlease wanted to inspect the rival EY and PwC pitches while helping prepare another proposal for the firm.

Ms Hoggett replied that he could inspect a printed copy stored in her locker when he returned to Sydney.

“I think we confidentially allow him to look at the printed version in my locker,” the email said, read out to Parliament by Senator O’Neill. “He needs to do it sensitively without letting too many people know.”

Ms Hoggett said she had no memory of putting the documents there.

“I’m not here to defend or minimise the fact that the documents were printed and put in my locker,” she said.

But she denied knowing the material had been circulated more broadly inside KPMG or used to help the firm win new work.

Former KPMG chief executive Andrew Yates said the Hoggett email had changed his earlier view that there was no evidence supporting the whistleblower’s allegation.

“I’ve now seen that, and it’s clearly changed that,” he said, adding he had resigned once other evidence first emerged suggesting the allegation was substantiated.

“When it became clear to me … I resigned.”

Westpac kept in the dark through ‘drip feeding’ audit scandal

The inquiry also heard Lendlease material had reached KPMG staff working on its successful bid for the Westpac audit.

Kim Lawry, who worked on the tender and later became Westpac’s lead audit partner, photographed a Lendlease scorecard showing how rival EY and PwC had been rated.

A document tabled at the inquiry alleged Ms Lawry later emailed the image to another member of KPMG’s Westpac bid team. She acknowledged taking the photograph but denied it was used in the tender.

“The scorecard was not of use or particular relevance to me, and it wasn’t used in the Westpac audit tender,” she said.

Westpac director Michael Ullmer, who ran the tender, said the bank first learnt of the broader allegations through Parliament rather than KPMG.

“I would surmise that the information is within an inner circle, and then it’s being drip fed out,” he said.

KPMG sometimes gave Westpac just three or four hours’ warning before further details became public.

“You think you have your arms around it, and then more information is revealed,” Mr Ullmer said.

The disclosures became so disruptive Westpac paused a regulator-required assessment of whether Ms Lawry remained fit to audit the bank.

“We actually paused that process because of the continual drip feed of information coming out,” he said.

Mr Ullmer said Westpac had also not been told about allegations Ms Lawry took an image of Lendlease board material on her phone. Asked whether that was another example of the drip-feed, he replied: “Absolutely.”

Westpac demanded Ms Lawry be removed from its audit in July. She later resigned from KPMG.

Mr Ullmer also said former Westpac audit committee chair and ex-KPMG Australia chair Peter Nash had “failed” by socialising with senior KPMG figures during the tender.

“He did fail because that was clearly something that should not have occurred during the process,” he said.

Mr Nash stepped aside from running the tender because of his longstanding KPMG ties but still sat in on pitch presentations. He later resigned from Westpac after scrutiny of those relationships.

Ms Lawry is due before the committee later on Friday alongside former KPMG leaders Martin Sheppard, Andrew Yates, Eileen Hoggett and Julian McPherson.

Optus blasts ‘egregious’ KPMG breach

Separately to the Westpac and Lendlease scandals, the inquiry heard Optus official accuse KPMG of putting its own business interests ahead of professional duties after confidential audit material was shared with staff pitching for rival Telstra’s business.

The allegations came during a parliamentary inquiry on Friday probing a series of shocking allegations that KPMG partners misused client secrets, crossed conflict lines and passed confidential information around the firm to help win lucrative work.

Optus chair John Arthur told senators: “KPMG breached professional duties and competence owed to Optus to further its own business interests.”

The top accounting firm had assured Optus its Telstra bid team would be kept separate from staff working on the telco’s audit and would not have access to its data.

Chief executive Stephen Rue said those assurances “were not followed”, with a draft audit plan and data analytics review among Optus documents shared with the Telstra bid team.

Mr Arthur called it an “egregious breach of professional responsibilities”.

Optus has kept KPMG as auditor for the current financial year after finding its audit itself had not been compromised but has tightened controls around the firm’s work.

Mr Arthur said Optus had moved to a “trust, confidence and verified” approach and would watch the new controls “like a hawk”.

It comes as the accounting firm’s audit scandal threatens two prized corporate mandates, with Dexus weighing whether to keep the firm and Macquarie considering tearing up plans to appoint it as auditor.

Macquarie chair Glenn Stevens said the board could “revisit” its decision to replace PwC with KPMG if it could not get comfortable with the integrity of the tender and the firm’s ability to do the job. “We probably need to land that within the next few months,” he said.

Dexus chair Warwick Negus earlier said its board had “not yet reached the view” on whether KPMG would continue as its auditor beyond this financial year after months of extracting “small bits” of information from the accounting giant.

Dexus puts KPMG future on notice

Dexus, one of Australia’s biggest listed property groups, followed Westpac before the inquiry. KPMG was already its internal auditor when it pitched for, and ultimately won, the external audit contract of the company.

The inquiry is examining whether KPMG used confidential information gained through that internal audit work to give itself an advantage in the external audit tender.

KPMG had law firm Allens investigate whistleblower allegations alleging a KPMG staffer working on Dexus’s internal audit suggested leaving his laptop open with restricted company information while colleagues working on the external audit bid went to lunch.

The big four’s internal investigation later characterised the remark as a joke, albeit an “inappropriate” one.

KPMG then told Dexus the claims concerning it were unsubstantiated. Yet Allens never interviewed Dexus, which only saw the report after the committee published it this week.

“Why didn’t you come and talk to us? Why didn’t you ask us?” Dexus chair Warwick Negus said.

Mr Negus said passing internal audit information to staff bidding for the external audit would be “inappropriate” and could give KPMG a “leg up” over rivals.

Dexus is now weighing whether to keep KPMG as its auditor beyond this financial year.

“It has been a process of extracting small bits of additional information,” Mr Negus said. “We never really knew whether we had all of the information.”

“The board has not yet reached the view on whether KPMG will continue to audit Dexus beyond the 2026 financial year.”

But he also pointed to the difficulty of changing auditors in a market dominated by four major firms, saying Dexus had 30 or 40 KPMG staff working on its accounts on Friday and switching providers would be “disruptive”.

Asked whether Dexus shareholders would have learnt of the problems without the whistleblower and the parliamentary inquiry, Mr Negus replied: “Almost certainly” not.

‘A rat’s nest of conflicts of interest’: Macquarie reviews KPMG appointment

Macquarie could still walk away from plans to appoint KPMG as its auditor, with chair Glenn Stevens saying the board needs to make a call within months.

“We, as a board, need to either have confidence to proceed with the current plan to move ahead with KPMG, or it’s conceivable that we can revisit that decision,” he said.

“We have some time, but we don’t have a huge amount of time. We probably need to land that within the next few months.”

KPMG is due to replace rival PwC, Macquarie’s auditor of more than 50 years, but the bank is now testing whether the scandal-hit firm still has the people to do the job and whether its pursuit of the tender was clean.

Finance chief Frank Kwok said two partners originally slated for the Macquarie audit had left KPMG, while Allens was reviewing more than 130,000 communications for evidence of impropriety in the tender.

But senators tore into Macquarie’s decision to rely on Allens when the law firm is acting for KPMG rather than the bank.

“Allens’ client, in this respect, is KPMG,” Mr Kwok conceded.

Senator Paul Scarr described the arrangement as “hopelessly conflicted”, questioning how Macquarie could rely on a law firm whose client stood to lose a major audit mandate if the review uncovered wrongdoing.

“Allens is not acting for Macquarie; they’re acting for KPMG... this is a huge issue...”

Senator Barbara Pocock went further, describing the web of relationships as a “rat’s nest of conflicts of interest”.

Mr Stevens acknowledged Macquarie had no direct contractual relationship with Allens and therefore no direct recourse against the law firm if its work proved deficient.

The inquiry also zeroed in on Macquarie audit committee chair Michelle Hinchliffe, who spent 37 years as a KPMG partner before joining Macquarie just a month after leaving the accounting firm.

Ms Hinchliffe met potential bidders before the formal tender, including KPMG, although Mr Stevens said the same opportunity was offered to all four major firms.

Asked whether he had specifically checked if she had any contact with KPMG during the formal tender, Mr Stevens said: “I have not put that question to her.”

“I’m assuming the answer would be no because that was the protocol,” he said prompting the committee to ask him to check and report back.

Ms Hinchliffe was present when the board was informed of management’s decision to whittle the field down to KPMG and incumbent PwC, but Macquarie stressed she played no part in the final choice.

Mr Kwok said she left the room when the audit committee considered the final two bids and was also absent when the board ultimately backed KPMG.