Fintan O’Toole: KPMG hoovers up fees as politicians forget everything

When we think of the madness that is the National Broadband Plan (NBP), of €3 billion of public money for infrastructure that will be owned by a private company, four letters should come to mind: KPMG. For within those four letters is the story of a political class that has forgotten everything and learned nothing.

At stake in the broadband scheme is what Robert Watt, secretary general of the Department of Public Expenditure, has called in an official memo "the unprecedented risks associated with this project".

When was the last time unprecedented risk turned into a disaster for the Irish taxpayer? A decade ago. Whose fingerprints were all over it? KPMG. And who devised the outrageous model at the heart of the NBP? KPMG.

As of January, we have so far paid KPMG, one of the biggest consultancy and audit firms in the world, €11.33 million for work on the NBP. This is the way public policy is formed in the State now.

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Thinking about all big public projects is outsourced because that way no one has to take responsibility for the public good

In 2015, following a public procurement process, KPMG was contracted to provide “financial, commercial and procurement advisory services” for the NBP. Its consultants then shaped the entire approach of the Department of Communications. According to correspondence from the departmental secretary general Mark Griffin, the KPMG people “either drafted or provided input/review of key procurement documentation”.

Key document

In fact, if you look at the key documents on the NBP on the department’s website, none of them even bears the logo of the State. Instead of the Irish harp, their covers have the global brand: KPMG.

This includes the most important document of all, the one that strongly recommends that the private company that gets all the public funding should retain full ownership of the infrastructure.

Why? A central argument is that this model “is the least intrusive to the commercial market”. This is the way the extremely talented people who get to be consultants with firms such as KPMG are trained to think. It is their assumptions, their hierarchy of values, that shape the whole story of what is good or bad for Irish citizens.

But we should know how catastrophically wrong those assumptions can be. In each of the years that created the great Irish banking disaster, 2002 to 2009 inclusive, KPMG were the auditors for two of the worst financial institutions in European history: Allied Irish Bank and Irish Nationwide.

It was lucrative work: between the end of 2002 and the end of 2009, AIB paid KPMG €49.9 million in audit fees and another €11 million for other services including what is described as "assurance to third parties".

KPMG also got €1.65 million in fees from Michael Fingleton’s notorious “building society on crack”.

Yet in the 16 annual audit reports on two institutions careening wildly out of control, KPMG never once managed to signal the risks that were being taken.

As the Oireachtas banking inquiry rather mildly put it, the auditor's notes to the accounts "did not raise alarm bells over property-related loan concentration levels or associated risks".

Banking bubble

This remained true even as the banking bubble was visibly bursting: concerns were “not raised in any of the accounts for 2007, 2008 or 2009 of any of the [banks] to draw the reader’s attention to the severe difficulties”. Right up to the moment of collapse, “the audited accounts provided little information as to the implications of the risks undertaken”.

This was not because KPMG’s people were incompetent or because things were hidden from them. As the Nyberg report into the bank collapse put it, “the auditors. . . had the skills, opportunity and procedures required for detecting and evaluating asset and funding risks”.

It was because of what Nyberg called “disaster myopia” – so long as the petrol tank is full, you can’t see the cliff edge towards which the vehicle is heading. This myopia is fundamentally ideological. Market incentives are assumed to be rational – the irrational outcomes they may have do not compute. The big picture, which is the overall public interest, is invisible.

The Irish public ended up paying well over €30 billion to clean up AIB and Irish Nationwide. So how the hell did we go back, within a decade, to asking the same people who saw none of this risk to assess on our behalf the “unprecedented” risks associated with the NBP?

The fault does not lie with KPMG, which does what it is designed to do – hoover up fees. KPMG and its competitors have simply filled a vacuum at the heart of the State. We have a ruling culture that has already forgotten everything that happened so recently. It has “moved on”.

But moved where? Into a bland technocratic desert where thinking about all big public projects is outsourced because that way no one has to take responsibility for the public good.

Any amount of money is available for anything, so long as it does not require the Taoiseach or his Ministers to articulate and implement choices for which they take personal and political responsibility.

In this process, disaster myopia is built into everything from housing policy to the National Children’s Hospital to the NBP.

Who cares, so long as, when we have the inquiry in a few years, they can say: the consultants made us do it?