A former partner at accounting firm KPMG says he lost his job after a senior NSW public servant pressured him to change a report that found the state's budget was $10 billion worse off than Treasury claimed.
Brendan Lyon on Monday told a parliamentary hearing that public servants subjected him to "unprofessional, ongoing" attacks and that Treasury Secretary Michael Pratt called for him to be sacked.
Mr Lyon's team at KPMG was engaged by Transport for NSW to set up operating and financial models for a new state-owned corporation established to own and run the state's rail infrastructure - the Transport Asset Holding Entity (TAHE).
But he found there would be safety risks in letting it begin to operate at the start of last financial year as planned.
He also found that TAHE would cost $5.3 billion over the forward estimates, while Treasury had estimated it would bring in more than $4.7 billion.
In other words: "the budget (was) some $10 billion or more worse off than Treasury has claimed."
That finding angered Mr Pratt, who wrote to Mr Lyon in November 2020, after the KPMG report had already been finalised: "You either correct the errors or remove all references to Treasury modelling, which is not for you to comment on."
Mr Lyon replied: "Mike, I'm sick of being bullied by you. Grow up (and) tell the truth."
Minutes later, Mr Pratt wrote to senior partners at KPMG: "You obviously have a partner who refuses to take counsel and is out of control ... I expect you to take action."
Mr Pratt's criticisms were part of a year-long pattern of Treasury bureaucrats engaging in "very unprofessional, ongoing attacks" on him and his team, Mr Lyon said.
"Treasury were continually trying to take control of (the report), they were continually trying to remove the embarrassment.
"And when that wouldn't be removed I became the embarrassment they tried to have removed instead."
The emails are contained in a bundle of documents Mr Lyon has provided to the committee.
Mr Lyon said it became untenable for him to stay at the firm after "internal vexatious disciplinary processes" were launched.
"I was in an unwinnable position ... I had to choose between my own professional ethics and my partnership at KPMG," he told the hearing in Sydney.
Mr Lyon, who was subpoenaed to appear before the public accountability committee, said he believed senior partners at KPMG were conflicted because they had promised Treasury they could achieve a result that was not possible.
He said they'd inserted themselves in a family feud between Treasury and Transport for NSW over how to approach TAHE.
Treasury had "lost sight of what matters with the public rail system" - safety.
"It was all to do with the net fiscal presentation of the budget ... It was always going to be awkward for the Treasury because a dog ate $7.3 billion of their homework or more," he said.
As well, then-premier Gladys Berejiklian had told bureaucrats she wanted TAHE to become operational.
"I wouldn't be surprised if any premier would say something like, 'this has to be fixed'," Mr Lyon said.
"What I wouldn't expect is that a bureaucrat would then breach, in my view, both ethics and potentially lawful behaviours, to achieve something that's not achievable."
As for KPMG, he said, the firm "has let itself end up in a position that it has the same level of internal control that one might have with a bad case of gastroenteritis".
Ultimately, Mr Lyon argued, the structure of TAHE is flawed with breaks in the chain of accountability that could lead to fatal train accidents like the one at Waterfall.
"If (TAHE) actually works for accounting rule purposes, then it definitely does not work for safety," he said.
The committee also heard from TAHE chair Bruce Morgan.
Mr Morgan said a change in accounting principles when TAHE became a state-owned corporation on 1 July 2020 had seen the value of its assets written down by $20 billion that financial year.