By Christine Chen
SYDNEY, Oct 22 (Reuters) - A probe into KPMG Australia has found it mishandled whistleblower allegations of client data leaks and let cultural and governance weaknesses persist for years, but stopped short of recommending a permanent ban on the firm from federal government work.
The Department of Finance, which commissioned the review by former bureaucrat Ian Watt, said KPMG has instead agreed to not bid for new federal work until February next year while the firm undertakes further
governance reforms, extending a pause in place since June.
"The review considers that KPMG should not be treated as permanently unsuitable for Commonwealth work, but nor should confidence be restored on the strength of assurances and encouraging early signs alone," it said.
The review was launched to probe KPMG's governance, culture and ethics following a whistleblower's allegations that staff misused confidential information to bid for new audit contracts.
"KPMG mishandled the whistleblower matter. Its response was misguided, fragmented, prolonged and, at critical points, lacked clear ownership," the report released on Thursday said.
KPMG did not immediately respond to a request for comment.
The report said despite the whistleblower raising concerns of unethical conduct arising from commercial pressure and a fear of retaliation, KPMG primarily treated it as an "employment matter" and was more focused on the legal implications and organisational risks, paying inadequate attention to whether the allegations might be accurate.
"These shortcomings significantly damaged the whistleblower's confidence in KPMG's handling of the claims. It also damaged client and public confidence and KPMG's credibility," it said.
KPMG's mishandling of the whistleblower's complaint also reflected broader weaknesses in its culture and governance, which have persisted for years at the firm.
The report said that by 2020, KPMG had already identified issues around "the primacy of financial returns, inconsistent ethical leadership, reluctance to challenge senior personnel, barriers to reporting misconduct and weaknesses in ethical decision-making". But there was little evidence the firm adequately addressed them, it found.
It recommended the government should not allow KPMG to bid for new contracts again until it independently verified it was implementing reforms and that they were "changing behaviour in practice".
Federal government work made up A$207.1 million, or 9.5%, of KPMG's revenue in the 2026 financial year, the report said.
Since the scandal became public in March, KPMG has lost major blue-chip clients and replaced key leaders, including its CEO, chairman and audit chief.
(Reporting by Christine Chen in Sydney; Editing by Sonali Paul)
