EY Australia grilled at Senate estimates over former partner taken to court by the ATO

The professional services firm says no governance system can stop bad apples as it defended the failure to detect a former tax partner at the centre of alleged significant tax misconduct.

EY Australia says there will always be bad apples within large corporations and that no internal controls or governance system is perfect as it defended its failure to detect a former tax partner of alleged significant tax misconduct.

Members of the professional services firm were questioned during a heated Senate estimates hearing held by the Finance and Public Administration References Committee, in Canberra on Friday about whether its organisational structure was fit for purpose.

It comes as the Australian Taxation Office launched legal proceedings against the firm’s former partner.

EY Oceania chief executive David Larocca told the hearing that the firm had 11,000 people and that he could not guarantee there would not be someone employed at the firm who would not bypass its policies.

“What I’m focused on is making sure our people are aware of what we stand for. They understand the ramifications if they do this, and then we learn from situations when they do happen because they will,” he said.

The ATO has accused the man of promoting tax schemes to different clients between November 2016 and April 2021. EY was first notified about the ATO’s investigation in June 2021.

EY in November outed itself as the employer, and revealed he took more than $700,000 in unauthorised payments related to the allegations.

On Thursday, a Federal Court judge threw out the former partner’s last-ditch effort to keep his name secret as “an abuse of process” following allegations he promoted a massive tax avoidance scheme.

EY outed itself as the firm that employer in November. Picture: Chris Pavlich

Greens Senator Barbara Pocock told EY that its structure had failed, and that while there would be bad apples in the workplace, it was a five-year period with “serious misdemeanours alleged”.

“How effective can your policies and your structure be if this former partner was able to fly under the radar for more than five years?” she asked.

The firm responded that it was not a failure of structure, but completely unacceptable behaviour that lasted for five years and that no other person at EY had been found to have taken part in the scheme.

“The former partner received undisclosed financial benefits upwards of $700,000. That is completely unacceptable, and no internal controls or governance system is perfect,” EY Oceania tax and law leader Scott Grimley said.

EY said that the firm has held discussions about how it can make its systems and processes more robust, which formed the basis of its enforceable voluntary understanding, and it has held talks with the ATO about what the agency expects of the firm.

“We are very sorry for those clients that have had to similarly deal with this matter,” Mr Grimley said.

“We have established that the former partner in managing those three clients and that is now subject to the proceedings were matters whereby the former partner has not followed our policies and procedures.”

Meanwhile, KPMG Australia chief executive Andrew Yates rejected suggestions he had lied to the Senate after he said the firm had been too “literal” previously about whether it “power mapped” relationships with clients.

Mr Yates said that the firm mapped relationships with clients for its teams to undertake and deepen relationships with clients, not to unduly influence people.

“We do as a commercial organisation organise ourselves around clients, that’s the way that any organisation would operate, and we set goals for those clients for the way that the people act in those engagements,” he said.

“That’s the purpose of the maps … we don’t use them, and I’m not sure how you could use them, to unduly influence people but that’s not the intent of them.”