Senate Finance and Public Administration Legislation Committee, , 8:36:18 to 9:13:41
The Department of Finance addresses the KPMG review, whistleblower allegations, and the strengthening of the supplier code of conduct.
Topics: Procurement, Whistleblower protections
Speakers: Senator The Hon Katy Gallagher, Senator Barbara Pocock, Matt Yannopoulos, Senator The Hon Jane Hume, Marisa Purvis-Smith, Andrew Danks, Anna Harmer, Dr Subho Banerjee, Speaker 36
>> Thank you, Chair. I've got some questions about finances review into KPMG. Uh last week, finance tabled Dr. Ian Watts uh independent review into KPMG and your department's response. Minister, Dr. Ian Watts review found among other things that KPMG's handling of the whistleblower claim was quote misguided, fragmented, prolonged, and at critical points lacking clear ownership. Do you have anything you want to add about this review, Minister
>> on KPMG? Uh no I mean it was commissioned by the department of finance and it's informed um some of the decisions that have been taken since. I think it stands on its own. I engaged with Dr. Watt uh on two occasions. Uh I think he did a very thorough job um and you know finance and I will work with finance on how how we progress and they've p you know agreed to pause their work until end of February.
>> That's right. So the the outcome of Dr. Watt's review and I met with him also. Thank you. It was um useful to engage. Um finance has extended the temporary pause on KPMG bidding for new comworth contracts as I understand it till the 28th of February 2027. However, some of Australia's biggest corporate players, Len lease, McCquory Group, A&Z have dumped uh KPMG's auditors well into the future. Um some departments as we heard yesterday like PMNC uh have ended contracts for example the internal audit contract has been ended by C by PMNC um with KPMG. Why have you as the department uh minister as the leader uh left the door open to letting KPMG back in February given that clear judgment that KPMG's handling of the whistleblower matter was misguided, fragmented, prolonged, and lacking clear Shouldn't you be an exemplar of how to respond when such appalling corporate practice is visited on us as an economy? It's all wrong.
>> Well, I think we have responded um and we've responded uh in a pretty comprehensive way. We've had a review. We've had a pause on um uh procurement essentially with them. Um but you know, I think running government procurement and a individual decision by an individual company private are are two different things.
>> Do you agree that KPMG misled the
Uh, look, I well, I've read the review. I've followed at a distance some of the work that you've been doing. I'd wait for um the committee to come back with, you know, once you've finalized your discussions and considerations of that like like I haven't been a part of the work that you've been doing. Um, I've been focused on it from this side in terms of government procurement. Well, let me
summarize just one event. Um, for example, the whistleblower uh claims that there were documents, confidential audit documents photocopied and kept in a secret locker. >> Um, that was denied from for a very
extended period of time by the >> changing evidence. Yes.
>> Yes. And that was a deceit, was it not? It was eventually shown that there were
such documents. >> Well, I've I've followed it. As I said, I haven't followed it from as closely as you've been. I've been looking at it from a different point of view which is about government procurement. This didn't happen on a a government procurement, you know, through a government procurement contract.
>> Isn't it polluting our audit system more of a problem than than uh um a single misdemeanor in relation to a contract? >> This is our financial system. We're talking about the integrity of information.
>> Yes. And I'll let you know there's other ministers involved in that, Minister Mulino and others. And you know I'm focused on it from my point of view which is you know being responsible for government procurement. But yes, I mean I think the behavior that's been uncovered is appalling which is why uh the department undertook uh comprehensive review and has paused work or has you know pause essentially on them getting government work until the end of February during which they have to you know show the steps they've taken to remedy the deficiencies that your work and others have identified including the whistleblower. So what
steps will you take on in February as you approach the end of this extend extension of the pause?
>> Well, at the end of February, that'll be a matter for our department. Um so over the coming period KPMG needs to develop an action plan and agree that with us if you like the actions that they're taking to deal with their conduct both in the treatment of whistleblowers but also in in the events surrounding uh this enormous failure inside their firm. They need to show progress once we agree that action plan. They need to show progress against that action plan and we'll review what that means for them in terms of Commonwealth uh potential to bid at the end of
>> What other mechanisms are available to to you Minister um beyond the pause options uh to deal with the misconduct that's been laid bare in this review?
Uh well uh I I'm not quite sure what you're getting at. I mean we've we've taken some decisions based on the the review that um Dr. Watt has completed and there's a range of remedies in that and suggestions and recommendations that we are now working through.
>> Do you have contact with the uh state and territory government some of which have also placed pauses on contracting with KPMG? Do you have any uh information about how those other governments are reacting? Are you in communication with them about that?
>> Yeah. So, so maybe if I ask Mr. Danks to answer that because we are we are in contact with states and territory procurement officials.
>> Andrew Danks, first assistant secretary procurement. Um so we are members of the Australian Procurement and Construction Council. It comprises states and territories in New Zealand. Um when KPMG issues start first started up, we had a regular Thursday u meeting with all the states and territories to talk about what each of the actions were doing. Um they were provided a copy of Dr. Watt's report before it was made public because we were doing this together with the states. We are talking to them tomorrow as on sorry this Thursday I should say um to understand what they are doing with further further pause. I understand some states are considering a further pause but I don't know the level of detail but happy to take on notice and provide that information once we talk to the states.
>> Thanks Mr. Danks. Thank you. I would appreciate that. Um on the overall work that KPMG has uh with government um do you have information on all current contracts with KPMG both total value and I'm asking if you've got it and if you have could you provide it on notice?
We could certainly do it on notice, Senator. We have list of contracts that entered in during the pause and amended, but we don't have a list of all the contracts that are currently in the system for KPMG, but we can easily provide that on notice.
>> Thank you. I'm also interested in the extensions uh which have been quite significant. A sizable amount of money has gone into extensions with this firm which I find rather astonishing. These are in in consultant land often the sweetest money of all because they're right at the end of a contract. It's very profitable earnings and KPMG has certainly been making hay on extensions. I've got some more questions about finances review into KPMG. Who from finance has met uh with who in KPMG on
>> Uh Senator, I might start there. We we created a small secretariat to assist Dr. Watt. It's Mara Perversmith, Deputy Secretary Commercial. Uh to assist Dr. Watt with the review. uh that secretariat was headed up by uh Mr. Sebar who's who's with us here who can answer detailed questions. Dr. Watt met with uh KPMG uh I think uh 10 10 times might be Yep. 10 times. Um uh the secretary and I met with Mr. Sam's the new CEO of KPMG uh last week on Tuesday to take him through and discuss the outcomes of the review. Uh after which uh I sent a letter detailing what our what we would like KPMG to agree to. >> Um and during that time the secretariat uh was with Dr. Watt speaking with not just uh Mr. Sams, but a range of KPMG officials uh who uh the secretary asked for information and material to assist Dr. Watt in the report and the review. Mr. Sebar might be able to take you through a bit more detail of exactly uh who uh who was spoken with when if he might have that hand if that would be
>> Uh Gareth Sber, assistant secretary commercial group. Senator on page 149 of Dr. Watt's report um the relevant appendix sets out who Dr. Watt consulted with throughout the the course of the review.
>> Thank you. I will go to that and uh saving us time. Thank you. That's useful. Um are you satisfied uh with um how KPMG has responded so far?
KPMG have responded quickly to everything that we have asked them for and my understanding uh from Dr. Watt is that they responded uh appropriately and quickly to all of the requests uh in the response uh that the letter that I sent and asked them. They responded quickly and overnight and they have agreed to the requests we made to pause uh uh bidding for Commonwealth work until the end of February.
>> Um we I said just a moment ago that PMNC had terminated a contract and clearly we just heard earlier the APSC also terminated its uh training of senior public servants through KPMG. Do you know of any other contracts across the public sector that have been terminated with KPMG?
>> I'm not aware of contracts that have been terminated. Those decisions are made by the appropriate accountable authority and departments. We wouldn't necessarily know. I'm not sure that we have that information. I just want to double check that for you.
>> No, you're good. on notice. Could you uh check and uh let us know if there have been terminations of contracts with what departments the the uh focus of the work and the size of the contract? Um I wanted to go >> All right. I'll just Is that a useful place to stop? >> I can stop now. Yeah. >> I'm still going to go on the review, but
>> Senator Hume,
>> thank you. The prime minister, the treasurer, and the minister have consistently claimed $178 billion in savings and repeatedly done so. Secretary, as per budget papers, can you confirm that that number doesn't solely reflect savings, it also reflects reprioritizations. So the decision is taken that the money will in fact be spent, not just saved. It's on different expenditure. It's not a savings. Um, is that correct?
>> We've we've been clear. >> I mean, I've I say it in almost every pre press conference that I give that it's about savings and rep prioritizations within agencies and across the public service over what time
uh since the 2022 pre-economic fiscal outlook which was the fir the final publication before the election where prime minister Albanese form government
>> so that's 178 that's been banked does it is it just in the past what about in the future is it also forecasts and
>> uh I'll check with my colleagues but I believe it would reflect the forward estimates value >> which evolves since that time just Paul can you
>> Paul Fitzner first [clears throat] assistant secretary budget group um that includes both uh so effectively the eight years since 22 PIO so it includes both the forward estimates
>> and the medium
>> no sorry not the medium-term but as in the actual results
>> the forward estimates covered in each of those updates
>> right
>> like you add an extra year each year
it goes out to what year now that
>> 2930 the end of the forward estimates published in the 2627 budget
>> 2930 okay so uh so savings that are estimated over the next four years do they largely come from NDIS savings that haven't occurred yet
>> no it would include this 37 >> 8 billion >> um that would be a component of that 178.
>> Sorry, can you say that again, Minister?
>> Sorry. The the the budget saving and I think that was prior to the delay, so it might move around a little bit was 37.8 billion over the forwards. >> From that budget year from this budget year, 2627. So the the forward estimates period for that. So it forms a a sizable component of the 178.
>> Okay. All right. Um page 95 of budget paper one colloially known as the table of truth. Can I be really can I just get a better sense from you? How much did the spending decisions actually worsened the
there are and I'll see if I can get it. cuz there's different components. There's uh spending as a result of and then there's obviously those other significant areas which is the demand driven programs. >> I'm just trying to find the right number Um, it's about 118.9 billion in automatic payment variations.
>> So, the payment decisions, how much were the payment decisions?
>> but that's not from 22. I think that's what you're after. So, >> we can only can only >> I'd have to go back and see if we can find um that gross that total number for you. I can't see it in front of me right
from what I can see, the net spending decisions are actually negative 535 million in the table of truth. Is that right?
Oh, so you're looking over page 95 So in this budget alone p Yeah. Let me just get my right documents cuz I've got the final budget outcome and that's the budget. I just got to work from different documents. >> That's a positive number though. >> So in this budget, is that what you're after? >> Yeah. So on page 95, that's right.
>> So net spending decisions are negative 535 million. Is that correct? Over the four years?
>> Yes.
>> Okay.
>> According to >> that table. Yes.
>> Well, according to the budget, when inflation's high and interest rates are high, you're spending an additional $535 million over four years. Okay? So, it's not a net save at all. >> it's a spend. Yeah.
>> That Senator that's for the payments line only. You if you wanted to compare the what has been the overall impact of the budget, you need to go to the bold line that shows how the underlying cash balance is better than it was at my EO.
But that's from high taxes. Yeah. >> Not from spending, not from saving.
>> So if you look on um page 3.2, table 3.2 too as well. Um so yes, there's the interaction between receipts and payments, but there's also provisions u policy decisions including previously made provisions as well.
But I just want to be clear, secretary, it is from higher taxes. Yeah.
>> Well, that's your language, Senator Hume. There's an interaction the budget >> I know it's convenient to look at one section but the budget overall takes into consideration receipts and
[clears throat] payments okay and that's exactly what I'm trying to get to receipts and payments and payments have grown they are a negative spending decisions are negative in that
the table >> it has a the reconciliation >> there's a a uh as you say it's the 535 over the budget uh >> over the Ford estimates but if you look in particular uh the 26 27 year >> uh you can see the restraint essentially that's been shown there and you know we have done the hard work to deliver the savings that are needed and the reforms that are needed to reduce areas in those fast growing programs in all of them uh we are doing the work. So all
right I understand that that's the message but clearly what's been decided in this budget is to spend an additional 8.7 billion in 2627 is that right >> the decision has been to spend an additional 8 7 billion in 2627. >> And I understand that you can say that there's spending pressures and there's, you know, interest rates, you know, interest repayments and defense and NDIS and all of those things.
>> Yes. Well, that is the real world. Yep.
>> Well, just want to make sure that there's the real number, too. There's an additional spend of $8.7 billion.
>> well it's outlined in the table Senator
>> that's correct then
>> well for the sake of >> tables are correct
>> yes thank you all right can I turn to page 106 of budget paper one obviously
>> can I just go through though sorry I was just looking for it I couldn't find it but in that 26 6 27. So this goes to the discussion of um well I think it is important to go through what those investments are um because I know you don't have to deal with the pressures that we are dealing with but we do. So 1.4 billion in payments for new PBS listings um very difficult I imagine if you were in my position Senator Hume to say no to that. Um we did last time you were in government 1.3 billion in health terminating measures. So various programs that have have had you know were funded for a period of time. 1.1 billion for services Australia resourcing um 436 million to extend NDIA staffing. There's the fuel and fertilizer security facility. 2.2 2 billion for defense for their additional spending. And I note you've you have promised to spend more than that uh and uh 3.4 billion in hospitals. So the investment through the uh national hospitals agreement. So um you know in all of those areas I think you would be hardressed and I note that none of those are on your list of cuts that you've announced in the last day or so. funded. So, >> but they are choices of government. They're decisions of government. And you know, I'm happy for you to own that. >> Well, I would like you're you're running the argument that we uh you know that presumably that you would not be spending what we have outlined in table 3.3. I've just taken you through a list of what those things are and I would challenge you to say any one of those like are you not going to spend 2.2 2 billion on defense or on new drugs or on keeping services Australia ticking over like so in which case what you know what's the criticism
>> okay so you're anticipating questions that I'm asking I'm just asking for clarification
>> well yeah but you know I mean it's all very easy to run a political argument it's harder actually to sit at the table and make decisions about [snorts] uh you know in there is no shortage of claims names for funding through the budget. No shortage. And I can gave you the list there. And you've agreed that none of those are areas that you wouldn't address yourselves.
>> Minister, all I am questioning is the claim of $178 billion in savings when actually you're spending more. That's and they're decisions of government. And look, if they're decisions of government, fine. But own it. Own it. The decisions of government.
There are $178 billion in savings and rep prioritizations across our budgets. Something that you did not do >> in any of yours. You didn't take any hard decisions. You just didn't do things. You just kind of kept, you know, like you didn't deal with the energy crisis. You didn't deal with the age care crisis. You didn't deal with uh the NDIS running away from you. None of those issues that you actually did the hard work on. Uh and so what I'm saying is we're doing the hard work. Yes, it involves uh spending and investing in certain areas, but on any of those areas, if it's medicines, if it's hospitals, if it's defense spending, if it's NDIS, tell me which ones that you wouldn't do, you know, then let's have a real >> Rotate over.
>> Thank you, chair. Um I wanted to go to um back to the uh review of KPMG. Um Dr. Watts review made eight recommendations, most of which were for finance. I'm particularly interested in recommendation six uh which made a list of uh recommended changes to the Comwalth procurement uh framework. One of the clear takeaways to me was that Dr. what recommended that the government needs the power to ban unethical suppliers and um I currently have a private senator's bill before the parliament to do exactly that. Recommendation 6A was that finance should strengthen the supplier code of conduct framework to provide and I'm quoting provide strengthen sanctions including the ability to restrict or prohibit suppliers from bidding for Commonwealth government contracts where appropriate. However, finance uh merely noted most of the sub recommendations of number six and indicated the government, and I'm quoting, the government will consider recommendation 6A to 6F and respond in due course. Minister, when do you expect to provide a full response to these
Um, well, we only got it last week. Uh, from memory, was it last week? Um, yeah. So, you know, we'll work through as quickly as we can. We're doing some work on the supply code of conduct now which has been out for consultation that I'm working with Amanda Minister Rishworth on. Uh so it makes sense to have a look at the supply code recommendations in as
>> Minister, first we had PWC using misusing confidential information. Now we've got KPMG misusing confidential information, being un uh dishonest about the use of it, and treating a whistleblower appallingly. How much evidence do we need that procurement officials need to have the power to dodge and to ban those uh very poor contractors and as now recommended by your independent reviewer?
>> Yes. So I talked to um Dr. what a quite a bit about this um and also the fact that we have only recently got this supplier code of conduct in and that came in post PWC I think didn't it um because there wasn't >> and didn't the you know kind of the mechanism to deal with poor behavior through government procurement wasn't really available so um we did that work look you know I I'm constantly engaging with the department on what the tools are that we need to ensure the best behavior and conduct possible for government work. which is partly why we're doing further work on strengthening the supplier code of conduct to make uh very clear what we consider good practice to be um to clarify because I think there has been some feedback from uh suppliers that you know some clarification on aspects of what constitutes good practice would be welcome. So, we're doing that. Uh, and we'll look at what other powers are needed. And yes, both of those examples that you raised and we've had a couple of others, I think, um, give us the opportunity to think through what else is needed.
>> You've had other other contractors who
>> Well, I think there was another one that was raised, um, here. >> McN.
>> Okay.
>> Yeah. I think that was raised in another hearing. >> I think that's right.
>> Yeah. So what's your inclination then in relation to strengthening your tools uh on this? Do we have to go through all of the big four in this excruciating experience before we actually give ourselves the opportunity to ban people
who behave so poorly? But but we need to we need I just it's a big it's a big decision to put in place uh further uh you know penalties uh and it would be have to be something that you know part part of this gives us the opportunity to take that work and progress it through the normal government processes uh so uh we are doing that work. You say
it's a big decision, but these um
>> well big in the sense that it's not a a decision that I can make unilaterally. I think it it's a it's a big it's a more substantial decision than that >> and we would have to take that through our own processes.
>> Yeah. It's a decision of government. I guess most Australians if they've been you know done down by one supplier and then the next one does the same, you're going to be thinking very carefully about who you deal with in your household. And people look at this and think about >> yes, you know, agree many, many millions of dollars of contract. How many times do we have to get burned before we give ourselves that very basic opportunity to ban someone who behaves so badly?
>> Yeah. Um, look, and I I think there the damage that's been done to both of those companies has been in the in the hit to their public reputation to be honest. um you know that that is also a factor in the changing of their behavior because they have had some very severe consequences um from the public nature of their deficiencies. >> But really we should have in place everything that we need as a government to make sure that we are upholding the highest standards of conduct from our suppliers. >> Um you know it's not just the big four that are our suppliers though. We have, hundreds of thousands of contracts from tiny suppliers to very significant suppliers and I have to just consider all of that in the in the process. I
guess the distinctive aspect of what we've been through as a country is we've had one massive failure by PWC who sell off their entire consulting business. They pay a big price, but then here we are two years later with another BM. We've got KPMG2 billion dollars of business a year and they did not learn the lesson uh that that was provided to them free of charge in relation to PWC. So that kind of loss of reputation has not been instructive enough to get KPMG to keep its house in order. Remembering many people say KPMG's errors are more significant uh than those we saw which were appalling enough by PWC.
don't disagree with you, Senator Ho. Uh, and we are looking at we've got the what review. Um, we're looking at the supplier code. This will feed into that. Um, I want to make sure we have all the powers available that we need. Plus, it's not just on, you know, we've got to make sure the procurement system is running the best it can across the public service. finance has a role there >> in terms of setting some of the guidance and uh around how procurement should operate but account we've got a lot of work to do to make sure accountable authorities are doing the hard work as
>> agree with that um I want to move on to the strategic commissioning framework which we've covered with other agencies earlier the ANAO report of the strategic commissioning framework made a recommendation to the department of finance uh quote to support more efficient and consistent collection of data to inform effective workforce planning, strategic commissioning, ongoing oversight of APS reform objectives and public transparency. Why has the Department of Finance responded to this recommendation to note it not to
Uh, one of my officials will come up, but the principal reason is because uh it will be a decision of government if we want to change the obligations that goes to all of annual reporting of all comworth entities. So they they suggest uh so we have a convention and we we've done it indeed with this with the Dr. Watts review when when it proposes a recommendation that requires a decision of government we note it. It does not mean we disagree. It means that there will need to be work done and the government will need to balance the reporting burden that would be added because financial statements are already a very comprehensive set of reports in the back of every annual report that you see and what further purpose is served by that. And so we're working with the public service uh commission and and my colleagues uh down the end who are responsible for the rules that set out what go in annual reports uh to to determine is there a is there a a way to to to give effect to what the NAO has proposed. I don't know whether Anna you want to add anything.
>> Good evening Senator Ananda-Rajah Hama deputy secretary governance and resource management. uh as the secretary has set out uh the relevant uh reporting requirements are set out in an instrument that is made under the public um governance performance and accountability act. So that is why it would be a question of government if it were to change. Uh those standards are based around existing accounting standards which focus on a question of materiality in reporting and so a change from that standard would require a decision of government but we would of course examine those and provide advice. um uh and that is the reason that uh it it is not for finance to respond to that recommendation as accepting or declining.
>> Thank you. Um the ANO audit notes that previous reviews including the the 30 review in 2019 identified the need for a whole of service workforce strategy and a more strategic approach to external providers. Why have we had these recurring concerns about data capability reliance on external labor? They've remained unresolved across successive reform processes and we're still sitting here really looking for the right indicators to have a sense of what's going on. Why why have we not seen progress in this area?
>> Well, I I don't know that I would accept that we've seen no progress. I think there's been lots of progress. I think a feature of our system is devolved accountabilities. So accountable authorities are ultimately responsible for the actions, the procurement, the workforce decisions that they take. >> We try and set rules that help transparency in and the evidence of that is I guess the annual reports that get tabled in the parliament each year. Uh but we're always trying to balance how what standardized looks like versus uh creating reporting burden that's not out of you know natural systems and so you know and and it changes over time. It's really been uh the work on strategic commissioning or the government's uh policy to reduce reliance on contractors and consultants through the significant savings that I that I overheard were being discussed in the public service commission's hearings. uh that has had accountable authorities thinking about how they best configure their organization to deliver on the government's revised policy
strikes me sitting here you know $20 billion in external consulting and a labor hire and so on that is a massive amount of money that hasn't changed in 5 years it was that in the last year of the of the Morrison government and so this question of the level of de devolution the voluntary and flexible framework the application at the local level it's just not working to see a a real reduction on the level that I I thought the government was aiming for but let's let's me move on to to possible unless you want to