Departments and agencies should think seriously about tearing up existing contracts with KPMG if the federal government wants to send a strong message on ethical conduct to consultants, an expert has urged.
The Department of Finance this week revealed that KPMG would be frozen out from applying for new federal government contracts between June and September, while an investigation into its governance, culture, ethics and integrity frameworks is completed.
The big four consulting firm is currently awaiting the findings of another external investigation it commissioned into allegations that some of its partners misused confidential client documents to pitch for audit contracts.
The allegations were aired by Labor senator Deborah O'Neill under parliamentary privilege in March, and the firm has since apologised for its treatment of the whistleblower who came forward with the claims.
KPMG this week said individuals in the firm "have made mistakes", but that "those failings do not reflect the overwhelming majority of our partners and people".
While the firm has welcomed the Finance-commissioned investigation, a Swinburne University corporate governance expert has called for the federal government to take an even tougher approach to existing KPMG contracts.
"I'm suggesting that what we need to do is engage in economic deterrence by which we send a message through canceling contracts that this is unacceptable behavior, we are not going to tolerate it, and you have to regain our trust before we start using you again" Helen Bird, a senior law lecturer, said.
While the Finance freeze doesn't apply to existing contracts, the department has reminded federal entities of "the need to monitor the ethical behaviour of suppliers throughout the term of any contract".
Mark Harrison, a managing director at Sententia Consulting says ruling KPMG out temporarily will leave a considerable amount of work open to other firms, including small and medium businesses.
"There'll be a bunch of budget measures that are going to need help in terms of being set up, there'll be a bunch of contracts that may have expired 30th of June that will need to be replaced," Mr Harrison said.
Established in 2020, Sententia has about 50 employees across its Canberra and Melbourne offices.
Mr Harrison says it's one of a growing list of firms outside of the big four that are finding more success in the national capital.
These include national firms like William Buck, KordaMentha and BDO, as well as smaller players like BellchambersBarrett, Cobalt and Axiom.
The Albanese government has sought to give more of its consulting work to smaller firms since coming to power and the PricewaterhouseCoopers tax leak scandal also encouraged a temporary drift away from relying on the big four.
"I don't think it will result in the breakup of the big four," Mr Harrison said.
"Clearly, governments may have a say in that, but I think there is still a place for those firms, an important place in the consulting market.
"But it's probably going to be slightly smaller ... in the short-term and potentially even in the in the medium-term."
Officials from KPMG will appear before a parliamentary committee on Friday to publicly answer questions about the whistleblower allegations and their response.
