‘Incredible failure’: KPMG rejects claims it assessed ‘the wrong company’ before $423m payment to Paladin | KPMG

Consultancy firm KPMG Australia has rejected claims it conducted due diligence on “the wrong company” before the federal government gave nearly half a billion dollars to a controversial company with no track record.

The firm’s objection to comments by a member of a Senate inquiry examining its conduct come after weeks of intense criticism and accusations it repeatedly misled parliament over its use of so-called power maps, which identify influential decision makers within departments.

KPMG Australia was asked to provide advice to the home affairs department in 2017 before it awarded $423m to security contractor Paladin for work on Manus Island. The closed contract has been the subject of scrutiny ever since, including a recent investigation by former Asio boss Dennis Richardson.

During the final public hearing of the Senate inquiry on Friday, Labor senator Deborah O’Neill accused the firm of an “incredible failure” when advising the government on the outsourcing of security services.

“An EY audit shows that KPMG investigated the wrong Paladin entity,” O’Neill told officials from Chartered Accountants Australia and New Zealand, an oversight body. “I’m watching jaws proverbially hit the floor as you hear me tell you this, because that is an incredible failure.”

The EY audit of the Paladin procurement, published in 2019, found KPMG Australia provided a financial assessment of Paladin Solutions, a PNG-based company, rather than Paladin Holdings, a Singapore-based company that was awarded the contract. KPMG PNG had a business relationship with the PNG-based company.

“The financial strength assessment report obtained by the department is not relevant to the financial strength of its contracted service provider – Paladin Holdings,” the EY audit said. “The department noted that Paladin Holdings did not have financial statements.”

When asked for a response to senator O’Neill’s criticism, a KPMG spokesperson said: “We did not conduct the assessment on the wrong entity.”

“[The EY review] found KPMG conducted the financial strength assessment on ‘Paladin Solutions’ at the request of the commonwealth, based on the financial statements provided to the department,” the spokesperson said.

During a Senate estimates hearing last week, O’Neill also accused the firm of “a failure” to manage a conflict of interest. But a KPMG spokesperson said the EY report found it “declared the PNG firm’s business relationship with Paladin Solutions to Home Affairs”.

However, the EY audit also found “there was no specific records of the department assessing and agreeing to this conflict declaration”. The report also criticised the veracity of KPMG Australia’s report to government, which warned Paladin Solutions was a “moderate/high risk”.

“The Financial Strength Assessment of Paladin Solutions PNG ltd report by the commercial advisors was based on information extracted from unaudited financial statements, without a statement of cash flows,” the EY report said.

KPMG’s defence comes as the Senate inquiry prepares to make recommendations for tougher regulation of the sector and after criticism from senator O’Neill and Greens senator Barbara Pocock.

The firm was criticised after initially telling the Senate inquiry that it did not produce maps of government departments that identify influential public servants, before being provided with evidence that it did.

Earlier this month, KPMG Australia’s chief executive, Andrew Yates, apologised to the inquiry for taking a “too literal” approach to senator O’Neill’s question about power maps. Senator Pocock was not convinced by the apology.

“You have lied to us,” Pocock told an estimates hearing on 9 February. “That’s my view. You’ve lied to us more than once. You’ve misled us perhaps four times and probably more times that I don’t know about.”

Yates told the inquiry that was not his intention.