When NSW Treasury secretary Mike Pratt emailed the senior partners of KPMG to demand they “take action” about an “out of control” partner, he didn’t need to spell out why they should heed his warning…
To the senior partners on this email, you obviously have a partner who refuses to take counsel and is out of control … I expect you to take action. ~ NSW Treasury secretary Mike Pratt, November 17, 2021
When faced with the dilemma of backing one of its partners who insisted on delivering a full and frank report for his client, or caving in to the demands of a lucrative source of revenue, KPMG had no hesitation: it went for the money.
According to infrastructure expert and former KPMG partner Brendan Lyon, the firm’s senior partners forced him out of working on any contracts involving the NSW government after he insisted on properly fulfilling the role that NSW cabinet had asked the Department of Transport and KPMG to carry out: examine the financial and operational model of the Transport Asset Holding Entity (TAHE).
Transport secretary Rodd Staples, who backed Lyon and refused to give in to Treasury’s push to take control of the issue, was sacked along the way, right before the enraged head of NSW Treasury Mike Pratt emailed KPMG’s senior partners demanding they “take action”.
And after KPMG fell into line, NSW Treasury paid them handsomely. Treasury had previously commissioned another partner, Heather Watson, to conduct financial modelling for the TAHE based on Treasury’s preferred assumptions, rather than the assumption that Lyon used for Transport for NSW — assumptions big enough to lead to a $10 billion discrepancy in budget outcomes.
Treasury’s Pratt — a former Westpac and NAB executive — and his deputy secretary San Midha — a former Westpac executive — used Watson’s modelling to attempt to undermine Lyon’s, demanding that KPMG itself resolve the purported conflict by using Watson’s.
After Lyon was sidelined — he left KPMG in June this year — Treasury significantly expanded its TAHE contract with the firm. A contract with KPMG for “project delivery and fiscal risk management strategy for Transport Asset Holding Entity (TAHE) Project”, which commenced in February 2020, was intended to only last until June 2020 and cost $400,00. It has been repeatedly varied: first to $588,000, then to over $900,000.
In September this year, Treasury revealed the contract had expanded still further to $1.9 million, with a scheduled completion date of the end of October.
At no stage did Treasury put the variations out to tender — the original contract wasn’t put to tender by Treasury either.
That’s not the only contract KPMG has from NSW Treasury. Indeed, it’s small fry compared to KPMG’s $6.6 million contract to assist Treasury with its tax reform project — which was revealed to the public, again without an open tender process — early this year.
That contract has since been varied as well, “to provide support for COVID response measures”, and is now worth $8 million. It’s why, if you go along to meet the “NSW Treasury Tax Reform Taskforce”, you’ll meet not just senior public servants like Joann Wilkie and Michael Warlters, but KPMG partners James Hunter — the “rainmaker” and friend of Pratt who tried to intervene on Pratt’s behalf during the brawl with Lyon — and Jacinta Hargan.
It demonstrates exactly how much power governments wield in making sure they get the advice they want, backed by the reputation of a big-four firm. When Pratt emailed the senior partners of KPMG — with Transport secretary Rodd Staples having been removed the day before — stating his expectation that they would “take action” about Lyon, he didn’t need to remind them of the stakes involved.
Pratt had already tried less direct methods of blocking Lyon: his senior staff had incessantly pressured Lyon and Transport to change his report; and he had encouraged James Hunter, often to be found in the NSW Treasury building, to “change the approach” within KPMG, with Lyon being dumped from writing the report and having another partner added to the team, while Transport would be overridden on the TAHE project despite being the cabinet decision tasking Transport with carriage of it.
More traditional public servants might view this as a department trying to subvert a cabinet decision.
The recalcitrant Lyon resisted at every step, but once Pratt was removed, any KPMG resistance vanished and Lyon was sidelined. With millions of dollars in government contracts available, failing to “take action” was never an option.