The Australian government has terminated its internal audit contract with the accounting and advisory firm KPMG, citing concerns about performance and external factors linked to recent misconduct within the firm. The decision was confirmed during Senate estimates hearings where Cameron Gifford, deputy secretary of the governance and corporate group in the Department of Prime Minister and Cabinet (PM&C), explained that KPMG was one of two firms providing internal audit services. It was dismissed under a "convenience" clause due to differences in quality and substance compared with the other provider, McGrathNicol, which retained its contract.

The move follows revelations that senior KPMG audit partners improperly accessed and misused confidential board documents from corporate clients to gain an unfair advantage in securing audit contracts. This misconduct came to light after a whistleblower’s allegations were aired under parliamentary privilege earlier this year and subsequently confirmed by an internal review. The scandal has led to the loss of major contracts, including a nearly $100 million annual engagement with Macquarie Group, and departures of key KPMG executives such as the chief executive, chairman, head of audit, head of human resources, and general counsel. Additionally, the firm’s chief operating officer, Eileen Hoggett, was dismissed and has launched legal action to seek further information about her termination. Hoggett was found to have printed confidential documents from client Lendlease to support a bid for audit work at Westpac, a company with common directorship.

Gifford stressed that the decision to sever ties with KPMG reflected both the internal service quality issues and the impact of these external integrity concerns. Separately, the Australian Public Service Commission (APSC) also cut short a $1.27 million contract with KPMG to provide ethics advice, ending it ahead of schedule on July 31 rather than the planned December expiry. This contract reduction was attributed to the broader context of KPMG’s misconduct and changes in key personnel.

In addition to losing the internal audit contract, KPMG remains barred from bidding on new government contracts until the end of February 2027, a ban recently extended by the Albanese government. However, some existing contracts with KPMG, including a smaller contract worth $89,100 for licensing and support of reporting models, remain in place.

The corporate regulator, the Australian Securities & Investments Commission, which oversees auditors, has not yet taken any regulatory action related to the KPMG scandal. Meanwhile, the Tax Practitioners Board (TPB), responsible for overseeing the conduct of registered tax practitioners and accounting firms, is investigating KPMG but has not imposed any sanctions. The TPB’s annual report highlighted efforts to address higher-risk behaviours within the tax profession to maintain public confidence. However, the report also noted challenges with regulatory compliance, revealing that only 7 percent of tax practitioners responded to its survey and just over half of the respondents believed disciplinary actions effectively deter noncompliance—below the board’s 73 percent target.

The unfolding situation continues to expose challenges facing KPMG as it manages reputational damage and regulatory scrutiny in the wake of misconduct revelations.