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Chapter 1: What is the main topic discussed in this episode?
A listener production. Hi, Natasha Belling with you and welcome to the afternoon edition of The Briefing. Coming up in our deep dive today, there's a growing scandal at KPMG, one of the big four accounting and auditing firms that's central to the Australian public and private life.
A whistleblower revealed that the firm was using confidential documents from one client to secure work with other top clients. Now the CEO has stepped down with more heads set to roll as KPMG risks losing top clients worth tens of millions of dollars as the scandal deepens. All those details in just a moment. But first, let's check the afternoon headlines this Wednesday, the 3rd of June.
Anthony Albanese has defended the federal government's controversial tax reforms in question time in Parliament this afternoon.
Chapter 2: What recent economic data was released for Australia?
The PM admitting skyrocketing house prices have put the Australian dream of home ownership out of reach.
Since 1999, house prices have risen by more than 400%, more than two times as fast as average incomes.
Mr Albanese claiming the government's changes announced in the budget to negative gearing and capital gains tax are designed to help young people who are, quote, working hard and making sacrifices. Meantime, new economic data was released today showing that Australia's economy is continuing to struggle.
In the three months to March, Australia's economy grew by just 0.3% below market expectations. The quarter just beforehand had a growth rate of 0.9%. Overall, Australia's growth over the year to March was 2.5%. Federal Treasurer Jim Chalmers, speaking after the release of the numbers, putting a positive spin on the figures.
This is very solid in the circumstances. Our economy's got no shortage of challenges, but it's also got some very sturdy foundations, and you can see that in today's data.
A major legal setback for Luke Sayers, the former president of AFL club Carlton. Luke, who was also the former chief of PWC Australia, has lost his bid to have a penis pic defamation case launched by his estranged wife to be heard in private. Today's ruling is a win for Kate Sayers, who sought to have the case heard in a public trial as she tries to clear her name.
Supreme Court Judge Andrew Watson agreed with Kate, saying it was not in the interests of justice to transfer the proceeding to a private hearing, but he did dismiss her request for a jury trial. Kate is suing her ex-husband for defamation over allegations she was responsible for posting a picture of Luke's penis on his account on social media platform X in January last year.
Luke alleges his account had been hacked. Britain has been rocked by violent protests over the police response to a young white man who had been fatally stabbed. Henry Novak was 18 when he was fatally stabbed in December last year.
The protests have erupted after the release of police body cam footage which showed the attacker, a Sikh man, falsely claiming that he had been racially abused by Henry. In a statement outside court, Henry's father described that police footage.
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Chapter 3: What are the implications of the KPMG scandal?
The response from one officer was, I don't think you have, mate.
The protests had been promoted by a far-right UK activist, but Henry's father says that the family did not want Henry's death to be politicised.
We do not want his death to be used to create further division, hatred, or tension. We want his story to make our streets safer for everyone.
Now it seems like the US and Iran are back into active fighting. According to the US military, Iran launched multiple ballistic missiles and drones on Kuwait and Bahrain. Those missiles were shot down before they could cause damage, according to the US military. The US has also attacked Iran, US Central Command, saying that they struck a military ground control station in Iran in self-defence.
And bear attacks in Japan are on the rise. Last year was a record-breaking year for bear attacks in the country, with 230 incidents reported and 13 people killed. And just yesterday, four people were attacked by a bear in the Fukushima province. All four are now recovering in hospital.
Local authorities say that that increase in bear attacks is because of a shrinking human population, but an increase in the bear population, especially in regional areas. Now it's time to get into our deep dive on the growing scandal engulfing one of Australia's biggest accounting and auditing firms, KPMG.
Its CEO has already stepped down, with serious questions now being asked about who knew what
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Chapter 4: How did the KPMG scandal come to light?
and when joining us to explain the ongoing fallout and what may happen next is senior writer with the australian tansy harcourt tansy thanks so much for joining us we know that this is a massive audit leak scandal engulfing kpmg at the moment can you tell us exactly how this was exposed
Well, a little bit like the PwC scandal of a few years earlier, this one was actually exposed by Senator Deb O'Neill, who sits on the Parliamentary Joint Committee. And this time it was exposed by her airing allegations under parliamentary privilege of a whistleblower who had actually first come forward to KPMG two years earlier. And what did this whistleblower allege was happening at KPMG?
It has a lot of allegations, but the main ones were about senior auditors actually using confidential data of their own clients and using that data to then try and win work from other clients or potential clients.
And we know KPMG is an auditor of some massive corporations in Australia, but also has a number of government clients, doesn't it?
It does. And I think that that's one of the areas that KPMG is probably deeply concerned about because the government, as I'm sure you know, is one of the biggest clients or in fact is the biggest clients of the big four auditing and accounting firms. So it's a really big deal. And we have had Katie Gallagher come out this morning and say she's deeply concerned.
I think there is going to be more statements to that effect.
We already know there's been a number of key senior managers within KPMG resign over this ongoing scandal, including at the end of last week, the CEO and another senior manager. Do you think that will be the end of the resignations?
Well, so obviously, yes, Andrew Yates quickly departed last Friday. And then today, Eileen Hoggart, who is the chief operating officer, was at least temporarily demoted. So she will remain on as an auditor, but she doesn't have the title of chief operating officer for the time being. And that's quite significant because...
Even though this is a scandal within Australia, KPMG is part of a cluster in the region. So it also includes Singapore, very importantly, the Philippines and New Zealand. And whoever is in charge of Australia and whoever is the chief operating officer and chairman is also in charge of the whole region.
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Chapter 5: What are the allegations against KPMG's auditors?
And so particularly in Singapore, there are quite a few partners that are worried about reputational damage expanding to their shores too.
And in regards to what happens from here, we know, as you mentioned earlier, the federal government seems very concerned about these allegations. Do you think we will see KPMG lose some massive clients? Because Lendlease earlier this week had said that they had ties for decades to KPMG, that it looks like that massive client is set to walk.
That client certainly does look like it's set to walk. And I would say that there will be other clients that walk. I think if you look at Macquarie Group, which is the biggest, that's the whale of auditing in Australia. So its work is worth kind of up to $100 million. And they had only just left PwC because of PwC's scandal and gone to KPMG. And now this has happened. So
there's a very big question mark about whether they will want to remain with KPMG. I guess the problem for a company of that size, because they have a lot of international units as well, there's a lot of work that goes into kind of setting up the framework for that audit.
So they might be kind of trying to hold on and see what happens, but they can't be too happy that they've effectively gone out of the fry pan into the fire from going from PwC to KPMG.
And in regards to the whistleblower, we know that there were allegations the whistleblower said that they were bullied when they brought these allegations to the attention of management within KPMG. It's also been alleged that two independent law firms did extensive investigations within KPMG and found nothing.
Exactly. And I think that that really says something too. The only thing I would... Not that I have a desire to defend any law firm, but I don't know what the terms of their investigation actually was. So, for instance, if they were... only told to look at a very kind of narrow pathway, perhaps they couldn't see what was there to be seen.
Or if they had a broad scope and found nothing, then there's got to be some questions asked of those law firms too.
How serious are these allegations, Tansy? Because we know KPMG is one of the biggest auditors and compliance officers in the country. How concerning is it about these allegations of cheating and of using confidential information when they're supposed to have the moral and ethical compass in investigating other companies?
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Chapter 6: What impact will the KPMG scandal have on its clients?
Those guys are supposed to be independent. They shouldn't be accepting freebies to see Taylor Swift and things like that that we've talked about at The Australian. They should be completely standing alone. They're almost a watchdog. Well, they are really a market watchdog. So to find out that they've been taking these steps and misusing these documents, it's very alarming.
And what do you think this says about KPMG?
Because as we mentioned earlier, there have been a number of heads roll. One would allege that they've walked away with handsome settlements. But now there's questions about who knew what and when in the entire organisation.
Well, that's exactly right. And I mean, every day when I look at my emails, I've got more and more information coming in about other whistleblowers and other incidents that have occurred at KPMG that have been kind of brushed under the rug. And I think that the firm really does need to have a look at its culture. And that can be such a kind of overused word, but clearly there is a problem.
And it's interesting, I was speaking to somebody from one of the rival big four firms just yesterday, and none of the rival firms are taking any pleasure out of this. They're all just saying, oh my God, this is too soon and it's bad for the entire industry. So what comes next is, it's a massive question.
And just on that point, we know just a couple of years ago, PwC was involved in a very, very similar scandal. Does this almost infer that there is a big cultural problem within these organisations?
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Chapter 7: How are whistleblowers treated in the corporate world?
I think that everyone needs to be asking that question and you would have to suspect that there may well be.
And in regards to ordinary Australians right now, many hardworking Australians, we know there's a cost of living crisis. How do you think this type of news and these really serious allegations will be received by Australians at the moment?
I think it's probably quite demoralising. I think if you look at the, a lot of the jobs that these people have are the kinds of jobs that struggling mums and dads might hope that their children will eventually go to university and have jobs like that.
And so then to find out that it can have this kind of inappropriate behaviour going on there, I think it's, as a mother of teenagers myself, I think you look at that and think, well, that's, it's deeply disappointing. Yeah.
Do you also think it reflects again, Tansy, about the importance of whistleblowers, no matter what alleged behaviour they're facing by speaking out, how important it is to tell the truth?
Oh, absolutely. And I think, you know, the big four consultancy and auditing firms are excluded in the Corpse Act from any whistleblower protection. So that makes it very hard for people at those firms to come forward. And I think that that's something that needs to be looked at. And I think actually there is now a review that's about to take place that does look at that.
It's very important for people to feel safe coming forward. And it's not good enough for these firms to talk about their speak up culture. And then while they're talking about their speak up culture, actually be suppressing information from whistleblowers. And that's what happened at KPMG. It's such an important story.
We really appreciate you joining us this afternoon.
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Chapter 8: What cultural issues are highlighted by the KPMG scandal?
Thank you so much, Tansy. That is Tansy Harcourt, senior writer with The Australian. Thank you. And that's it for this episode of the afternoon edition of The Briefing. We'll be back in your feed tomorrow morning with a deep dive on whether Australia can make data centres green. We'd love you to subscribe or follow us on Instagram at The Briefing Podcast. I'm Natasha Belling.
Thanks for your company.