Where KPMG went wrong: Lessons for HR

The parliamentary inquiry into events surrounding the recent KPMG scandal has revealed that the firm negated whistleblowing obligations by first approaching HR when the complaints emerged.

During the dedicated parliamentary inquiry into KPMG Australia’s ethics and professional accountability on 19 June, former national managing partner of audit assurance Julian McPherson admitted that he went straight to HR upon his discovery of the whistleblower complaint.

Committee chair Senator Deborah O’Neill, who initially told the committee of the whistleblower’s allegations against the firm, said: “I’m a little shocked that the first person you went to was human resources, which is often, people know, a way of managing people with a problem … you looked at this and you went, oh, this guy’s a problem.”

“When I’m looking at this and going, our culture’s a problem.”

O’Neill suggested that McPherson had not given priority or urgency to the whistleblower’s allegations or their communication to senior leadership, suggesting his treatment of the incident framed it as an “HR problem”.

She asked: “How long after you got what was just read into the record, did it take you to get to the door of your senior partner, entitled the CEO, and tell him these are serious matters of ethics, integrity and culture, you need to be aware of this?”

“Days, weeks, or months”?

McPherson claimed multiple times that he could not recollect when he translated the information to former KPMG chief executive Andrew Yates.

O’Neill said: “I guess I want to say, if that letter arrived, what most Australians would go, it would be, this is way beyond the pale, we’ve got an emergency here, I need to ring every bell, I need to make sure everybody is aware that this is a big problem.”

McPherson said he brought the whistleblower’s concerns to KPMG’s general counsel and HR division first “because I recognised there were serious allegations raised”.

Yates said: “My recollection is that these issues were presented to me in the context of the employment matters.”

Referring to a piece of evidence substantiating some of the whistleblower’s allegations, Yates said: “Up until the date of the document that was discovered on the 21st November, I think … the way that I talk[ed] to the team about this was about the employment elements of the challenge, and I could see that it was escalating.”

A statement from 19 June by the Greens reiterated that the core issue in KPMG Australia’s handling of the whistleblower’s complaints is that they were treated as an “employment” problem.

HR Leader spoke with Swaab partner Michael Byrnes, who stressed that whistleblowers must receive greater protection in line with whistleblowing legislation.

He said that the functions “need to be fully equipped to deal with the whistleblowing complaint … understand the policy, the process and the guard rails that need to be put in place to both properly deal with the [complaint] and also protect the whistleblower”.

Byrnes said that when whistleblowers are mistreated by their employer, “it’s more likely a failure to properly and fully implement those protections and cultural considerations. Overriding the compliance imperatives.”

“HR [has] a significant role to play in setting the cultural tone and environment for an open culture to develop, and that goes beyond whistleblowing,” Byrnes said.

“Whistleblowing legislative provisions are strong. It is a matter of enforcing full implementation of them. It’s really not a matter of the provisions.”

Human Rights Law Council associate legal director Kieran Pender said: “These frameworks should include effective and accessible procedures and policies, as well as facilitate trauma-informed disclosure mechanisms, training on whistleblower protections for all staff, and adequate support for whistleblowers.”

“Whistleblower protection is critical to any governance, risk, and compliance framework and should be considered by all leaders. When whistleblowers speak up, they safeguard ethics and integrity within their organisation.”

With the entire structure of firm partnerships called into question during an earlier sitting of the parliamentary committee and, more recently, in a paper titled Regulation of accounting, auditing and consulting firms in Australia, the fate of whistleblowers at firms remains in the balance.

In a statement provided to HR Leader, KPMG said that it is actively engaging with the progressing options paper.

“KPMG continues to support reforms that strengthen governance, transparency, auditor independence, firm-level regulatory oversight, and public confidence in the profession,” a spokesperson said.

“The firm has previously advocated for enhanced governance standards, greater regulatory oversight, stronger transparency measures, restrictions on non-audit services, and increased accountability mechanisms for audit firms.”

More to come.

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