Corrects first name of KPMG Australia chair to Martin Sheppard from David Sheppard in graphic. The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Antony Currie

MELBOURNE, June 26 (Reuters Breakingviews) - It's so often the cover-up that gets you. Or in KPMG Australia's case, such a botched attempt to deal with serious allegations from a company whistleblower that it came close to a cover-up.

It's only three months since accusations came to light that staff at the Big Four accounting firm used confidential information to win business. KPMG has now lost much of its senior management Down Under, including, this week, chair of both Australia and Asia-Pacific Martin Sheppard. Coming so soon after a PwC scandal, it ought to prompt an urgent overhaul of the industry.

The chief allegation is that an employee took board papers from long-time client Lendlease LLC.AX, stashed them in a locker and used them to pitch for and win business from another real-estate company, Dexus DXS.AX, as well as top-four bank Westpac WBC.AX. The whistleblower complaint was made two years ago but only went public this year after a politician raised it in parliament. It also claimed ethical lapses blurred the lines between those working on the separate internal and external audits for $40 billion Telstra TLS.AX and helped KPMG secure work from $65 billion Macquarie MQG.AX.

How many of those claims are valid is as yet unknown - largely because KPMG did not properly investigate them. One law firm it hired, Ashurst, told a parliamentary committee last week that it was tasked only with investigating the whistleblower as a workplace grievance issue, not the individual's assertions as KPMG had claimed.

KPMG did, at least, admit at the end of May that it did not look into the allegations with "the necessary rigour". That was at the same time as accepting Australia CEO Andrew Yates' resignation as well as that of head of audit and assurance, Julian McPherson. Two partners entangled in the Lendlease affair left this week - Paul Rogers and Eileen Hoggett, who relinquished her role as chief operating officer earlier this month.

Recovering from this implosion will be tough. PwC's revenue fell 26% in the year after its own scandal in 2023 revealed it had leaked government planning on tax-avoidance laws so corporate clients could dodge the levies. KPMG's mess may sting more as it extends the mistrust to the core auditing function.

The sagas expose major flaws that may well affect its peers. The Big Four only fix glaring governance issues after they cause problems: KPMG, as with PwC before it, is only now requiring its chair be independent. What's more, KPMG has held the Lendlease contract for 67 years: that Australian rules allow such a breeding ground for complacency and arrogance is astounding and needs fixing. A practice with a global brand ought to hold itself to a higher standard anyway.

Clients will become more demanding as a result of the recent scandals. Change is coming, and it can't arrive soon enough.

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CONTEXT NEWS

KPMG Australia Chair Martin Sheppard resigned on June 23, the latest casualty of a whistleblower scandal that went public in March when Labor Party Senator Deborah O'Neill used parliamentary privilege to raise the issues that a former employee of the Big Four accounting firm's operations first took to the company in 2024. Sheppard is also stepping down as chair of KPMG's Asia-Pacific operations.

On the same day, the Australian unit announced it would appoint an independent chair and add more independent board members as part of a broader overhaul of the company's governance, culture, ethics and controls. It also said it had appointed Principia Advisory to conduct an external review of the firm's whistleblower procedures.

Two audit partners, Paul Rogers and Eileen Hoggett, are also leaving the company. The Australian Financial Review reported on June 18 that KPMG fined both of them for their role in the audit the whistleblower flagged. Hoggett had already stepped down from her position as chief operating officer at the start of June.

The scandal has already cost the firm its CEO, Andrew Yates, and its head of audit and assurance, Julian McPherson, who both resigned on May 29.