Final consultant's report renews call for PwC to name those involved in scandal
A long-awaited final report into the PricewaterhouseCoopers Australia tax leak scandal has again urged the firm to name the partners and staff involved in the alleged breach of confidential government information.
The Finance and Public Administration's final report into the management and integrity of consulting firms made the recommendation among 11 others, targeting broader reforms in the Australian Public Service.
Parliament referred the inquiry to committee, following allegations that PwC Australia former head of international tax, Peter-John Collins, shared confidential information from a Treasury briefing with other staff and partners.
In two blistering reports on the firm's tax leak scandal, committee members united to rebuke the consulting giant for what they called a "calculated breach of trust", and "problematic" engagementwith the Senate committee, by failing to provide certain documents.
In the final report, Committee chair and Liberal senator Richard Colbeck wrote that: "While the committee does not feel the need to repeat all that has gone before in those reports, we remain concerned that the committee's core recommendation has not been reflected in the actions of PwC.
Liberal senator Richard Colbeck (left), Labor senator Deborah O'Neill (centre), Greens senator Barbara Pocock (right) contributed to the report. Pictures by Gary Ramage
"In particular, the failure to release the now infamous Linklaters advice which relates to the international elements of this matter, leaving the committee little option but to conclude that the failure to release this material is to protect the organisation from further scrutiny and consequences of their actions."
Alongside urging the big four firm to be "open and honest" with the Parliament and public, it called for APS agencies to report contracts worth more than $2 million bi-annually to the Finance Minister, who should then table them in Parliament.
A new Joint Standing Committee should also be established to review and approve consultancy contracts, similar to the Public Works Committee, which must scrutinise Commonwealth projects valued at more than $15 million before they can go ahead.
The report also recommended Finance bolster its requirements for contractors to work in the public interest, improve the training of procurement officials, and ensure outsourced labour arrangements build on the existing capability of the public service.
The department should provide a clear and consistent definition on what constitutes a conflict of interest, the report recommended, while the transparency portal for contracts (AusTender) should be improved to provide detailed, consistent and meaningful descriptions of contracts.
Labor, Greens issue additional comments
The 186-page report comes after 14 months of hearings, probing the integrity of consulting firms contracted by federal government, and makes 12 recommendations for improvement.
But the unified stance taken to condemn PwC in the early days of the 14-month-long inquiry has since splintered, with Labor and Greens senators offering up their own takes.
Greens senator Barbara Pocock, who successfully called for the inquiry in March 2023, said despite the "cross-party outrage," the Greens "hold different views on the necessity, scope and urgency of a response to what we term 'a very public swindle'".
Senator Pocock made 22 of her own recommendations, calling for sweeping reforms, including a moratorium on political donations made by consultants and contractors, within 12 months of their engagement with the government.
Big for consulting firms donated $938,152 to Labor and the Coalition in 2022-23, just above their sum for 2021-22 of $859,655.
The Greens' spokesperson on the public service also recommended a "revolving door" between the public service and private sector be better managed.
"We must also end attempts at political and economic influence through the use of the revolving door," Senator Pocock wrote in a 44-page dissenting report.
"That is, the recruitment of public officials to their ranks to harvest commercial opportunities, and the reverse: rotating big consulting staff through the public sector (through secondment, contracts and direct employment) to do the same."
This would involve enforcing a one year cooling-off period for partners involved in government contracts entering the APS, with the reverse to apply to senior public servants and senior ministerial staffers.
The Public Service Commission should also monitor and publish data on movement between the public service and private firms, the Greens say.
Labor lashes Coalition-era decisions
Labor senators Deborah O'Neill and Louise Pratt, linked the government's increased reliance on consultants back to previous Coalition governments.
The senators blasted the Abbott government's Average Staffing Level cap, which tied the size of the bureaucracy to 2006-07 levels of 167,596.
This caused agencies to rely more on outsourced labour, with an audit of employment finding the 2021-22 public service included nearly 54,000 contractor, consultant and labour hire roles.
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"The conditions for consultant infiltration of the Australian Public Service (APS) did not occur spontaneously, as the Abbott, Turnbull and Morrison Coalition Governments instituted policies that directly undermined the APS, and by extension, the integrity and security of our government departments and information," the Labor senators wrote.
The senators said the Albanese government had demonstrated "a renewed faith in the public service" since the 2022 election, with the public service growing by tens of thousands of places, and agency heads directed to slash their outsourced labour.
They endorsed the 12 recommendations made by the committee, saying they would - if implemented - "continue to meaningfully improve the procurement practices of the government, and provide additional assurance that taxpayers money is being spent in ways that are truly of benefit to the Australian people".
Miriam Webber
Public service and politics reporter
I report on the public service and politics for the Canberra Times. Reach me at miriam.webber@canberratimes.com.au
Inquiry calls for strict new rules for big four consulting firms
Edmund Tadros leads our coverage of the professional services sector. He is based in our Sydney newsroom.Connect with Edmund on Twitter. Email Edmund at edmundtadros@afr.com.au
Maxim Shanahan is a professional services reporter at the Australian Financial Review. Email Maxim at max.shanahan@nine.com.au
The big four consulting firms should be subject to stricter oversight, parliamentary approval of $15 million-plus contracts, and tougher regulation more in line with corporations of their size and influence, a Senate inquiry into the industry has found.
In its third and final report, tabled on Wednesday afternoon, the Senate committee found the major consulting firms operated in a “grey area”. It recommended sweeping changes to how the firms are regulated, including a review of legislation governing partnerships and parliamentary examination of consultants and professional bodies.
The big four consulting firms should be subject to stricter oversight, parliamentary approval of $15 million-plus contracts, and tougher regulation more in line with corporations of their size and influence, the Senate inquiry into the industry has found.
In its third and final report, tabled on Wednesday afternoon, the Senate committee found the major consulting firms operated in a “grey area”, and recommended sweeping changes to how the firms are regulated, including a review of legislation governing partnerships and parliamentary examination of consultants and professional bodies.
Key players in the Senate inquiry into consultants: Labor senator Deborah O’Neill, Liberal senator and committee chairman Richard Colbeck and Greens senator Barbara Pocock. Robert Duong
The 12 recommendations go to the heart of how the government engages consultants, and – if accepted – preface longer-term reform of the fragmented and light-touch regulation of accounting partnerships in Australia, whose auditing, tax advisory and insolvency services are of systemic importance to the economy.
This will be a painful prospect for firms that are earning lower profits amid a depressed consulting market, government deep-freeze and deep-seated reputational harm caused by a succession of scandals.
The recommendations include putting government contracts worth more than $2 million under heavier scrutiny, establishing a committee to approve any project over $15 million, tougher guidelines for managing conflicts and tighter transparency measures.
This report provides a strong cross-party statement on the urgent need for reform of government procurement processes and, if implemented in full, will provide meaningful changes to how the Australian Government contracts external consultancies,” said Labor senator Deborah O’Neill, a key member of the Senate committee.
Delayed report
The procurement-related recommendations are mostly extensions of work already underway by the Labor government, while the structure of the big four is the subject of a Treasury consultation paper released last month. The consultation paper, which floated slashing the 1000-partner cap and forcing firms to carve out their consulting businesses into incorporated entities, highlights how serious the government is about making wide scale changes in the way the sector is regulated and structured.
“This report documents the deliberate disregard for truth, ethical standards and public good that has been exposed within not just PwC, but all large consulting firms. The report reveals an opaque and maligned sector that has been allowed for far too long to fester in the darkness.”
The final report, originally due last November, has been repeatedly delayed due to developments in the PwC tax leaks matter and a tendency to stray from its core remit of examining how the government buys consulting services and how the firms are governed. The committee held 10 days of public hearings, received 61 submissions and responses to hundreds of Questions on Notice.
That means the committee is handing down a report in a radically different public sector consulting market than existed when Greens Senator Barbara Pocock successfully pushed for the inquiry in March 2023. It is also being handed down amid multiple ongoing investigations into PwC and a separate ongoing joint parliamentary committee inquiry into the structure of the big four firms.
The tax leaks matter, first revealed by The Australian Financial Review, involved a former partner sharing confidential tax information with PwC personnel who then used it to win new clients. The firm then developed schemes to help clients sidestep the tax laws the former partner was helping Treasury develop.
Commonwealth cuts its big four spending
Since the leaks revelation, there has been a wholesale pull-back in the use of the major consulting firms by the Commonwealth (a move now being aped by NSW). The federal government spend with the major consultancies in 2022-23 was $900 million, down from $1.2 billion in 2021-22 – the final year of the Morrison government.
The final report, led by committee chairman Liberal senator Richard Colbeck, largely focused on how the public sector buys its services and how the firms are regulated.
Senate inquiry into consulting wants the big four consulting firms to be be subject to stricter oversight. Robert Duong
But the committee also expressed frustration at PwC’s continued refusal to release a report into the involvement of international partners in the tax leaks, concluding its intransigence amounted to an attempt to “protect the organisation from further scrutiny and [the] consequences of their actions”.
The committee highlighted a number of examples of evidence heard by the committee relating to the culture within the big four firms.
KPMG was singled out for “contradictory” evidence relating to its use of power-mapping, while the committee noted concerns around conflicts of interest in work undertaken by EY. The committee also questioned whether the carve out of Scyne Advisory from PwC was an “elegant solution” to the problem of conflict.
A supplementary report prepared by the Greens went further, recommending a radical cut in the maximum size of partnerships from 1000 to 100, a ban on political donations by consultants doing public sector work, a forced carve out of audit work from multidisciplinary firms and an independent regulator for consulting industry.
The inquiry has at times become a proxy probe into the PwC tax leaks matter, initially led by the Senator Pocock and Senator O’Neill as inquisitors-in-chief. The first report by the committee found PwC Australia engaged in a deliberate multi-year strategy to cover up the breach of confidentiality in the tax leaks scandal, while the second found the firm had failed to take responsibility and reformfollowing the scandal.
Regulation required
The committee said the vast size of the big four firms – which all exceed 500 equity partners in Australia – meant that individual partners no longer had an effective voice in how the firms were run. This meant that the core partnership principle of joint and several liability – where each partner acts in the interests of the group because they are liable if there is a problem – all but redundant.
“It has become clear that large partnership structures, which operate effectively as corporations, and often as multinational corporations, are not subject to the same regulatory oversight and declaration requirements as those constituted under a corporate structure,” the committee said.
“The events … at PwC demonstrates that in organisations of that scale it is simply not possible for a partner to have the level of oversight required to effectively protect their individual interests.”
The committee declined to recommend specific changes to the structure of the firms, instead calling for the government to commission a review by the Law Reform Commission into the legislation governing large partnerships in excess of 100 members.
The recommendations raise the uncomfortable spectre of consultants being forced to account for their public sector projects, and parliamentary oversight of the accounting industry’s self-regulation regime with professional bodies such as CPA and CAANZ being grilled on investigations and instances of misconduct in accounting firms.
The committee said the inquiry had “raised questions” in relation to the application of professional standards, and it was “appropriate that there is a level of scrutiny as to how those self-regulatory structures and standards are managed and applied”, including annual reporting and appearances before parliamentary committees.
Final recommendations
Regulation of Australia’s biggest consulting firms will be considered by the federal government, amid recommendations by a Senate committee to name and shame staff at PwC Australia who were responsible for the firm’s tax scandal.
In a report published on Wednesday, the Senate Finance and Public Administration Committee said PwC should come clean over its breaches of a confidential government tax consultation scheme, and that the broader consulting sector had to face higher standards and better oversight.
But in a break from the committee’s recommendations the Greens, who took part in the inquiry, tabled their own report demanding even tougher responses to the string of scandals and poor behaviour highlighted by the inquiry.
In the final report by the committee, chaired by Liberal Senator Richard Colbeck, the members took aim at audit and consulting giant PwC, accusing it of failing to remedy its failures that triggered the parliamentary inquiry last year.
PwC, which has faced two previous critical reports, triggered the Senate inquiry after it was revealed last year to have misused confidential government tax briefings, and shared the information within the firm to prepare it for the introduction of new tax laws in 2016.
This was despite PwC’s head of international tax, Peter Collins, signing multiple confidentiality undertakings with Treasury as part of a tax consultation process.
The committee said PwC failed to release its findings into the scandal, prepared by law firm Linklaters, with Senators criticising its efforts “to protect the organisation from further scrutiny and consequences of their actions”.
The Senate committee notes concerns the confidential information shared within PwC was “used to influence the direction of negotiations to reform international tax systems”.
“The committee recommends that PwC be open and honest with the Australian parliament and people, and with the international community, by promptly publishing accurate and detailed information about the involvement of PwC partners and personnel (including names and positions) in the breach of confidential government information,” the report says.
Across its 12 recommendations, the report demands higher standards around the use of consultants, as well as calling for a review of conflicts of interest and a register to track breaches.
It also recommended an improvement to the government’s AusTender platform.
The committee said parliament should establish a permanent committee to “to review and approve consultancy and services contracts”, alongside a call for the federal finance minister to twice a year tender expenditure documents for consulting contracts worth $2m or more.
The government said it would “carefully consider the report and its commendations”, and that the government had already started its crackdown on tax adviser misconduct.
A spokesman said the PwC scandal had “exposed severe shortcomings in our regulatory frameworks that were largely ignored by the Coalition”.
“We’re cracking down on misconduct to rebuild people’s faith in the systems and structures that keep our tax system and capital markets strong,” he said.
A PwC spokesman said the firm “continues to make progress on delivering on our commitments to change” and would consider the report.
“We continue to work hard to rebuild trust and confidence with our stakeholders,” he said.
A supplementary report prepared by Greens Senator Barbara Pocock took a harder line on PwC calling for the firm to be banned from government contracts for five years, until it released the “full details of who did what”.
The Greens’ own report makes 22 recommendations, and Senator Pocock said the committee’s calls for change did “not go far enough”.
“They do not address the magnitude and scope of problems this inquiry has uncovered,” the Greens’ report says.
“Specifically they do not address the issue of political donations by big consultants, the revolving door in and out of government, the inadequacy of penalties for PwC, the pressing need for structural reform to cap big partnerships’ size, and to address conflicts of interest and the opaque nature of big partnerships.”
Apart from Senator Pocock’s call for a ban on awarding government contracts to PwC, she also said there should be a ban on contracts with former chief executive Luke Sayers, who now runs his own consulting house, Sayers Group.
Senator Pocock said there needed to be a tougher stance taken on consultants, and that accounting and consulting partnerships should be capped at 100, rather than the current limit of 1000. This would likely see most major consulting firms register as companies.
Her party’s comments were in contrast with the committee’s call that there be a review of partnership structures with more than 100 partners, which should make “recommendations to provide for appropriate regulatory governance and oversight of structures of this scale”.
Senator Pocock said there needed to be a “structural separation of audit and non-audit work” and the Greens wanted an independent regulator of the consulting sector “which should be established to set, investigate and enforce industry and professional standards”.
“Self-regulation and voluntary self-discipline have failed,” Senator Pocock said.
The Greens said the government should enforce a one-year cooling off period for partners and/or executives in consulting before starting a job in the public services, as well as senior public servants or senior ministerial staff or advisers taking jobs with consulting firms which hold contracts with the government.
Labor Senators Deb O’Neill and Louise Pratt, in their additional comments to the consulting report, backed its findings saying its recommendations would “meaningfully improve the procurement practices of the government, and provide additional assurance that taxpayers money is being spent in ways that are truly of benefit to the Australian people”.
However, they said matters of “professional accountability, regulatory reform and the inherent pitfalls of partnership structures did not fall within the terms of reference for this inquiry, and as such are not meaningfully addressed by the recommendations of the report”.
Senator O’Neill said the report “provides the disinfectant of sunlight” noting major consulting firms had been shown to hold a “deliberate disregard for truth, ethical standards and public good”.
“The report reveals an opaque and maligned sector that has been allowed for far too long to fester in the darkness,” she said.
