A week before the long-awaited report into consulting services, it can be revealed that KPMG was given $1.3 million to train the public service in ethics. By Jason Koutsoukis.
Exclusive: Disgraced consultancy to run government ethics training
Despite a string of scandals involving lying and overcharging, KPMG has been hired by the peak agency representing the Australian Public Service to run a course on the ethics of leadership for 300 top public servants.
The deputy commissioner of the Australian Public Service Commission, Dr Subho Banerjee, who also heads the APS Academy, told a Senate budget estimates committee the contract was “specifically associated with a long-running leadership delivery function that KPMG have had”.
KPMG Australia has faced multiple challenges to its reputation over the past four years, including accusations it lied to a Senate inquiry into the Big Four consulting firms; repeatedly ripped off taxpayers while contracted by the Department of Defence; provided conflicted advice to the New South Wales government over its controversial state-owned rail corporation; and was fined after more than 1100 partners and staff were found to have systematically cheated on courses about independence, audit and accounting rules.
Australian Greens Senator Barbara Pocock says KPMG’s $1.3 million contract to run the leadership course for senior public servants was a dream for the consultancy.
“I couldn’t believe what I was hearing,” Senator Pocock tells The Saturday Paper. “Why you would bring in a firm like KPMG, with its track record in this country and internationally, to teach anything to do with the ethics of leadership is a shocking proposition to me.”
She believes the course will also be used by the consultancy to recruit top talent from the public service. “How could the people involved in the letting of that contract possibly believe that this was not a farming opportunity for KPMG?”
In September last year, Pocock accused KPMG Australia’s chief executive, Andrew Yates, of lying to a Senate inquiry into the integrity of consulting services provided to the Australian government. The accusation came after questions over whether his firm used “power mapping” to track who within government departments should be targeted and charmed to help win new business.
Pocock subsequently produced a KPMG-branded, colour-coded chart that showed 72 decision-makers within the NSW Department of Transport.
“Now KPMG Australia has won a contract that puts them in front of a few hundred very senior up-and-coming public servants where their main focus will be to build relationships,” Pocock says. “That is a crème de la crème contract for the KPMG playbook. A land and expand contract that you dream about. And they got it.”
Next week the Senate Finance and Public Administration References Committee will table its long-awaited final report into consulting services provided to the Australian government, triggered following revelations surrounding the PwC tax scandal.
The scandal involved PwC using information obtained through confidential consultations with the federal Treasury to help existing clients and potential new clients avoid the soon-to-be-introduced Multinational Anti-Avoidance Law in 2016.
In an interim report published last June, the Senate Finance and Public Administration References Committee concluded “PwC engaged in a deliberate strategy over many years to cover up the breach of confidentiality and the plan by PwC personnel to monetise it.”
In the final report next week, the committee is expected to recommend a series of new measures to regulate the consulting industry, as well as ways the Australian government can rebuild the ranks of the Australian Public Service after a decade of outsourcing pursued under the Abbott, Turnbull and Morrison governments.
An Australian Public Service audit of employment, conducted last year, found contractors, consultants and other outsourced service providers comprised an external workforce equivalent to 54,000 full-time staff in the 2021-22 financial year, costing taxpayers a total of $20.8 billion.
By way of comparison, the audit found such an external workforce was equal to more than a third of the 144,300 public servants directly employed by 112 Commonwealth departments and agencies.
A report by the Centre for Public Integrity found that, over a 10-year period, the Big Four consulting firms expanded their business with the federal government by 400 per cent, with the total contract value awarded to the four firms growing from $282 million a year in 2012 to $1.4 billion a year in 2022.
Annual spending on contracts with the Big Four consulting firms fell to $885 million in 2022-23, and $439 million in the current financial year, according to AusTender data.
NSW Labor Senator Deb O’Neill, whose questions at a Senate estimates hearing in February last year after the first series of revelations surrounding the PwC tax scandal triggered the push for the full Senate inquiry, says the final report would largely focus on what needs to be done to rebuild the public service.
“There will be a lot in there about making sure that Australians get value for money improving our national security, and by having a skilled public service who are operating in the national interest, not in the abject and craven pursuit of the dollar above all things,” O’Neill says.
Pointing to actions already taken by the Albanese government to boost public service numbers over the past two years – according to the May budget, the total number of public servants jumped nearly 10 per cent in the past 12 months – Senator O’Neill says the committee’s final report will also focus on conflicts of interest faced by firms offering multiple services, including consulting, legal and auditing services.
“One thing that is absolutely clear is that the standards that are applied with regard to the legal profession are absolutely not being enforced in the assurance and audit sector,” she says. “The report that will be tabled next week will show that not only were conflicts of interest highly problematic for the companies themselves, conflicts of interest were part of their business model.”
Andy Schmulow, associate professor of law at the University of Wollongong, says the outsourcing of critical everyday functions of the Australian Public Service to consultants had been such a disaster for Australian taxpayers that he doubts whether any amount of reform could reverse the damage already done.
“Consultants are parasites, exponentially spreading disease,” he says. “Their tentacles are so deep, the rot that they have spread is so vast, the problems in this industry are so profound and so widespread, and by large, I don’t mean Australia, I mean all over the world.”
Schmulow says one of the first things that could be done was to ban firms that consulted to government from making any political donations.
Other urgent steps, he adds, should include banning firms that had profoundly betrayed the public trust, such as PwC, from doing government work for at least 10 years, as well as banning professional services firms from aggregating services.
“The reason for that is there are conflicts of interest. People will say ‘yes, but conflicts of interest can be managed’. Well, in theory, they can be managed; but in practice what we’ve seen is that they are not managed. Audit firms should not be allowed to own law firms, period.”
Professor Corinne Cortese, from the University of Wollongong’s faculty of business and law, says an alternative to introducing new regulations might come from reducing overall government reliance on external consulting firms.
“If the expertise is not held by the public sector, then perhaps this inquiry, and others like it, might be a signal that it is time for the government to invest in workforce development rather than continuing to spend on consulting fees,” says Cortese.
In December, the Albanese government launched its own in-house consulting unit, Australian Government Consulting. With a current staff of 17, set to expand to 38 over the next financial year, the in-house consulting unit is expected to shave $3 billion off the government’s outsourcing bill during the current parliamentary term.
“The installation of a highly skilled, adequately funded public service would significantly reduce the need for decision-making to be outsourced to consultants,” argues Cortese. “In turn, this significantly reduces the need to regulate the services that the consulting firms provide, to the public sector at least, because they would be much less frequently engaged to provide them.”
For Senator Barbara Pocock, who, along with Senator O’Neill and Liberal Senator Richard Colbeck has led the finance and public administration inquiry into consulting, another important area of reform likely to be reflected in the committee’s final report is the structure of partnerships within large professional services firms.
“These partnerships are huge,” Senator Pocock says. “They’re way above the size of partnerships for a legal firm or set of GPs or architects. I have been unable to hear logical evidence in support of the 1000 partner cap, so I think that those days are over…
“There needs to be a cap on the size of a partnership so it genuinely represents a partnership relationship, and we need to make sure that large entities that do billions of dollars of business have the same kind of transparency obligations as firms that are listed or incorporated.”
With current regulatory structures clearly not fit for purpose, Pocock says she would have to wait until the report was tabled to comment on exactly what further changes would be necessary.
“We’ve already seen one significant action, which we pushed really hard on, which is the removal from the Tax Practitioners Board of anyone who’s got a current financial interest in the Big Four. That’s a really important reform,” Pocock says. “But if we are going to move forward, then we need to make sure we aren’t captured by the Big Four in our regulatory structures.”
Following revelations last week that then Australian Taxation Office deputy commissioner Jeremy Hirschhorn had advised then PwC chief executive Luke Sayers of the ATO’s detailed concerns surrounding PwC’s tax practice at a face-to-face meeting in August 2019, Senator O’Neill signalled the Senate is not yet finished with Sayers.
While Sayers has consistently maintained he was not aware of the ATO’s detailed concerns, the ATO confirmed in answers to questions on notice that not only had Hirschhorn told Sayers of his concerns, including PwC breaching the confidentiality of Treasury’s consultation process and the apparent commercialisation of that breach, but that Hirschhorn had read out several representative PwC emails to Sayers.
“The committee that is reporting next week, the Finance and Public Administration Committee, has concluded its inquiry,” O’Neill says. “But the Parliamentary Joint Committee on Corporations and Financial Services, which I chair, is continuing its inquiry.
“This new information now before the parliament is certainly of interest to me and my colleagues and I will be using every avenue at my disposal to get to the bottom of what’s actually gone on here.”
Asked how Sayers had managed to deflect much of public outrage over PwC’s behaviour, Senator O’Neill says: “So he tells people. But would you like to be in his shoes?
“I think a fair bit already stuck,” she adds. “He’s certainly pushing a world view about his Teflon coating, but I just think in black and white now we see a very different reality emerging from the one that Mr Sayers has attempted to paint.”
This article was first published in the print edition of The Saturday Paper on June 8, 2024 as "Exclusive: Disgraced consultancy to run government ethics training".
Parliamentary committee forced to amend consulting report
By Tom Ravlic
June 7, 2024
The difference between a resignation and a lapsed membership of a professional body has resulted in a NSW parliamentary committee’s report on government procurement practices being amended more than a week after tabling.
Parliamentary committee members met this week to consider concerns from Professor Brendan Lyon, the former KPMG partner who exposed aspects of the advice the consultancy firm gave to the NSW government, that his circumstances had been misrepresented by the report.
Lyon’s evidence related to the case study of the Transport Asset Holding Entity (TAHE),which began operations in July 2020, and the problems he said he faced as a partner opposing a view from public servants that wanted the TAHE entity to be given the tick of approval by advisers.
KPMG was engaged to do work for Treasury and Transport relating to the TAHE’s creation, and those two NSW departments had different objectives.
There were conflicts of interest involved in the TAHE engagements and KPMG has said it had made mistakes in not properly managing these.
“The consulting service did not understand the lack of alignment between the interests of both government agencies,” the committee report says.
“KPMG did not step back as required by the situation and ask the NSW government to resolve the issues.”
Lyon ended up leaving KPMG not long after the TAHE advice was completed following disputes with partners over the contents of advice and robust exchanges with key public servants on the engagement.
The committee secretariat sent Lyon a final copy of the report on its release date. He wrote a letter to the parliamentary committee on May 29 to complain about the characterisation of how his membership of the Chartered Accountants Australia and New Zealand (CAANZ) ended in the context of disciplinary investigations.
The committee said in the initial version of its report that Lyon resigned his membership and was able to rejoin to clear his name and rebuild his reputation.
Lyon told the committee the situation was very different.
“I did not resign from CAANZ,” Lyon said. “My membership lapsed after I was dismissed from the KPMG Australia partnership.
“My membership as an affiliate member was managed in all regards by KPMG Australia.”
He added that the report in its original form inferred that he resigned his membership to complicate or prohibit CAANZ from investigating KPMG Australia’s professional conduct.
He said it “infers that I was facing adverse allegations or findings over my ethical and professional misconduct of which CAANZ were similarly prohibited by my resignation”.
Lyon also noted that there was an inference that allegations and findings of an investigation were damaging enough to warrant rejoining CAANZ so that he could clear his name and rebuild his reputation.
“These sentences are factually incorrect and on their natural wording convey damaging and false inferences based on false matters of fact,” Lyon said.
“I have at all times provided honest testimony, supported by extensive documentary evidence and cooperated in full with the NSW Parliament.”
The committee agreed to change the report to correct the error.
“The case study ‘Transport Asset Holding Entity and KPMG’ stated: ‘The investigation into this matter has been limited as Mr Lyon has resigned from CAANZ’,” the erratum to the report says.
“This should read: ‘The investigation into this matter has been limited as Professor Lyon is no longer a member of CAANZ as his membership lapsed after he was no longer a partner of KPMG Australia following the finalisation of his advice on the Transport Asset Holding Entity of NSW’”.
The erratum links readers to Lyon’s May 29 correspondence and wraps up with a statement of regret.
“The committee regrets any distress this error has caused and acknowledges the role Professor Lyon has played in identifying the issues related to TAHE,” the erratum says
