NSW treasury secretary drawn into allegations state budget numbers fudged

By Melissa Coade

Tuesday November 9, 2021

Former KPMG partner Brendan Lyon
Former KPMG partner Brendan Lyon at a hearing into the Transport Asset Holding Entity at NSW Parliament in Sydney. (AAP Image/Supplied by NSW Parliament)

A former KMPG partner has told a parliamentary inquiry that his work for Transport NSW compromised his ethics after a discovery that the state budget was worse off by about $10 billion; and how that finding saw him ‘bullied’ by treasury secretary Michael Pratt.

Brendan Lyon’s team at KPMG had been engaged to help establish the Transport Asset Holding Entity (TAHE) operating model for the department of transport, which was a new entity that would own and run state rail infrastructure. 

An inquiry examining the establishment of TAHE, and whether it has a viable business plan, heard from the ex-consultancy partner that he learned in the course of his work on the project the state budget numbers were wrong because of the way NSW treasury accounted for transport expenses. 

“The budget [was] some $10bn or more worse off than Treasury has claimed,” The Guardian reported Lyon told the inquiry hearing in Sydney.

A series of documents Lyon shared with the inquiry included email exchanges that show in November 2020 Secretary Pratt demanded the references to treasury modelling be removed or that Lyon ‘correct the errors’. References to treasury modelling was not for Lyon to comment on, Pratt warned. 

In a reply email, Lyon said: “Mike, I’m sick of being bullied by you. Grow up (and) tell the truth.”

Pratt then fired an email off to KPMG senior partners, describing Lyon as a ‘partner who refuses to take counsel’ and was out of control. 

“I expect you to take action,” Pratt wrote in his email to the partners. 

What followed, according to Lyon, was a ‘vexatious’ internal disciplinary process. He told the inquiry that he believed his former KMPG colleagues were conflicted as they had promised treasury a result that was not, in fact, possible. 

“It was always going to be awkward for the treasury because a dog ate $7.3bn of their homework or more,” Lyon said.

“I was in an unwinnable position … I had to choose between my own professional ethics and my partnership at KPMG and I chose accordingly.”

Most disturbingly, Lyon claimed the departmental and agency focus on how to approach the establishment of the new TAHE had drifted away from issues of safety. Treasury had ‘lost sight of what matters most with the public rail system’, and instead preoccupied with ‘the net fiscal presentation of the budget’.

Lyon also took aim at the pressures applied by then-premier Gladys Berejiklian, who had told bureaucrats she wanted TAHE to become operational. While pressure from a political master to achieve certain results were not uncommon, Lyon said what he was shocked by was that bureaucrats would succumb to that pressure to the extent that they would ‘breach, in my view, both ethics and potentially lawful behaviours, to achieve something that’s not achievable’. 

The inquiry also heard testimony from TAHE chair Bruce Morgan, who said that a change in accounting principles on 1 July 2020 had seen the value of its assets written down by $20 billion that financial year. This aligned with when the entity became a state-owned corporation. 


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