Top 10 broker Heath Lambert Australia is racing to contain the damage of an inquiry which found it had picked up forbidden commissions. While the cause of the problem is an administrative one, a report in the Australian Financial Review says the broker faces losing its very lucrative – about $30 million a year – reinsurance contracts.

Heath Lambert has offered to pay the commissions earned by its UK parent – reportedly $2 million – to the Government, and Ernst & Young has been appointed to independently review the situation and report to Canberra as soon as possible.

The report on the broker’s woes was reported in the AFR, which says a seven-month Government inquiry into allegations it took commissions was sparked by a competitor. $30 million a year will do that to you. The AFR says the Government wrote to Heath Lambert in May in relation to the payments, and it appears that’s the first time the penny dropped.

Of course, broking the coverage of the Government’s estimated $38 billion asset portfolio attracts fees rather than commission, and that is in force in the contracts. Heath Lambert confirmed to the Government that undisclosed brokerage commissions were paid to its UK parent by third-party underwriters. While CEO Gavin Pearce wasn’t available for comment yesterday, a spokesman said the issue has arisen “because of a misunderstanding between Heath Lambert Australia and its UK parent company over whether brokerage was allowed with Comcover”.

The group has a contract with the Government to find reinsurers to cover its $38 billion in assets ­– but in order to avoid conflicts of interest, it’s not supposed to receive any commissions. The contracts are estimated to be worth about $30 million a year.

An unnamed “industry source” told the AFR Health Lambert has received about $2 million in commissions since 1999. The AFR named QBE, Swiss Re, Royal & SunAlliance, Zurich and Lloyd’s as all having been awarded contracts under the reinsurance, but was careful to avoid pointing the finger at any of them as the payer of the commissions.