Independent KPMG report confirms culture, governance and accountability deficiencies

KPMG’s response to the whistleblower matter has been identified as misguided, fragmented, prolonged, and often lacking clear ownership following a whistleblower’s disclosure of unethical conduct and a poor speak-up culture.

The Department of Finance yesterday (22 October) released its much-awaited Independent Review of KPMG Australia and offered eight recommendations after issues were first formally raised in the Senate on 24 March 2026, and Ian Watt AC was appointed Independent Reviewer two months later.

Of the report’s key findings, it was determined that KPMG failed to respond appropriately to the whistleblower’s concerns and that the firm’s policies, reporting channels, and oversight structures did not operate effectively in practice to provide the necessary support, risk identification, or ensure timely decision-making.

As reported, various parliamentary members criticised KPMG’s handling of the whistleblower as an “employment issue”; and this sentiment was reflected in Watt’s report, which noted that “the firm dealt with the whistleblower’s disclosure primarily as an ‘employment matter’”.

The report reinforced a sentiment made by then-chief executive Stan Stavros on 23 June 2026, where trust is both the fundamental role of firms and the central challenge facing KPMG, while also acknowledging that core to the review’s considerations was that “virtually all of KPMG’s staff had no involvement in the events that occurred”.

In this way, Watt reaffirmed the whistleblower’s direct assertion that “my absolute observation is that 99 per cent of people at KPMG are really good”.

Of those involved, however, “no person, function or governing body maintained a timely and complete view of the matter and its combined risks”.

The review concluded that the firm’s framework was not fit for purpose, nor did its existing policies and reporting channels make it effective.

Specifically, it was determined that these pathways failed to remain sufficiently independent or offer a reasonable degree of certainty they would be appropriately considered, offering “little or no evidence of a structured assessment and management of risks to the whistleblower”.

The report said: “The firm focused more heavily on the legal status of the disclosure, the allegations and the risks to the organisation … and too little on the possibility that the whistleblower’s broader allegations might be correct.”

The review similarly found that the firm’s governance structures were also “stronger in design than in operation”, adding that the sheer amount of mechanisms – including policies, committees, independent directors, control functions, investigation pathways and disciplinary processes – did not equate to the necessary degree of ownership, information flow, escalation, and urgency.

Information was reportedly fragmented and had little overall influence compared to management’s characterisation of the matter, with National Governance Board scrutiny arising only after significant public, parliamentary and commercial pressure.

The report said: “A central governance failure manifested when the firm did not bring multiple warning signs together and test the possibility that the whistleblower’s concerns might be correct.”

Culturally speaking, the review found that existing issues relating to the primacy of financial returns, inconsistent ethical leadership, a widespread reluctance to challenge senior personnel, barriers to misconduct reporting, and questionable decision making were consistent with those identified during independent work commissioned by KPMG in 2020.

Initiatives introduced following this work and that of the PwC matter failed to substantially address these vulnerabilities in what was identified as a “missed opportunity”.

It was further stated: “Many of the same themes later reappeared in the whistleblower matter.”

However, the report reinforced their findings as reflective of broader issues with leadership, culture, governance, and accountability.

The report noted its consideration of whether the firm’s actions to improve governance and integrity frameworks thus far and its comments about the future provide a degree of confidence for proper conduct in the future, whether “something more” is required, and if so, when KPMG can be “fully trusted to provide advice and services”.

KPMG’s engagement was identified as both constructive and cooperative.

In this way, the significant leadership overhaul was considered in the report’s assessment of the firm’s future prospects.

Acknowledging current steps taken to address the issue – including the appointment of a new chair, disciplinary action, the release of its action plan, the commissioning of external reviews, as well as accepting their findings and efforts to repair its relationship with clients and the whistleblower – as insufficient on their own.

The report surmised that “trust is not restored through assurances alone … an organisation rebuilds trust when it demonstrates that it has acknowledged and confronted difficult issues honestly, admitted shortcomings where they exist, taken meaningful and sustained action to address their causes, and results publicly confirm essential change”.

“Lasting remediation will require disciplined implementation, independent assurance, transparent reporting and evidence that reforms are changing behaviour in practice,” it said.

The Department of Finance has “welcomed” the report and accepted the relevant administrative recommendations, adding that some recommendations will be a matter for government consideration.

In addition, Finance has “agreed with KPMG for a further extension to the pause on KPMG bidding for Australian government work until 28 February 2027, during which period KPMG will provide Finance with an implementation plan, and the first of its quarterly progress implementation reports”.

The department will be responsible for assessing the firm’s progress against the implementation plan with regard to governance and whistleblower arrangements, as well as cultural change to provide “confidence that KPMG meets the Australian government’s ethical expectations of its suppliers”.

The review made three areas requiring action: a demonstration that governance, cultural and whistleblower reforms are being implemented and have an impact, a Commonwealth requirement of independent assurance and transparent reporting before procurement restrictions are lifted, and that lessons from this matter “should be used to strengthen Commonwealth arrangements for identifying and responding to supplier integrity concerns from broadly”.

Further, the following recommendations were made: that KPMG should implement its action plan as rapidly as possible; that Finance should monitor this implementation and that of the recommendations over the next three years or until implementation is complete; that an independent implementation adviser should continue, and that Finance should maintain the procurement ban until sufficient aforementioned demonstration.

Finance may also consider reinstating the “no bid” arrangement if appropriate, strengthening the Supplier Code of Conduct Framework, continuing to work with states and territories through the Australasian Procurement and Construction Council, and working to embed effective procurement practices.

As reported by The Australian Financial Review, KPMG was provided with the report on Monday, 19 October, with chief executive John Sams meeting with Finance a day later.

In a statement released the same day as the report, Sams said: “While we are making important progress, we know that changing culture takes longer than changing individual roles, structures or controls. Leadership changes, improved governance and tone from the top are important steps in driving organisational culture – but we know there is more to do.”

“KPMG will measure and publish progress, update its Action Plan where required and maintain independent oversight until the change is clear to our people, clients and government. Confidence in KPMG’s suitability for Commonwealth work must be earned through evidence of effective, lasting change.

“KPMG will be judged by whether it delivers deliberate and sustainable change and by how the firm responds when doing the right thing is difficult. We are committed to the Independent Review recommendations and our broader Action Plan.”

The Department of Finance’s report follows that of consultancy firm Principia Advisory, which determined that the firm exhibited breaches of independence, misuse of confidential information, and alleged whistleblower mistreatment.

In opposition, CA ANZ concluded in its Quality Practice Review of the firm that there were “no significant deficiencies” within KPMG’s handling of confidential audit information.

As reported last month, KPMG Australia was criticised for signing a Defence deal worth $5.2 million during a procurement ban that commenced in mid-June and amid the department’s independent review, with Greens Senator Barbara Pocock criticising the government’s seeming allowance of the loophole.

KPMG has also seen a mass client exodus in the last few months, including ANZ, Lendlease, and IAG.

ASIC is expected to publish findings from its surveillance in the big four audit firms in late 2026, with the parliamentary joint committee on corporations and financial services inquiry also ongoing.

Want to see more stories from trusted news sources?
Make HR Leader a preferred news source on Google.