Cult of consultants’ overruns NSW state government
The Simple fix to the PwC scandal that consultants would hate
On the eve of thefinal report of the Senate inquiry into the consulting sector, a simple way of
ensuring accountability has been proposed.
Jun 12, 2024
When the Senate inquiry into the consulting
sector issues its final report on Wednesday, we can expect a raft of
recommendations about the way the bureaucracy should deal with consultants
following the PwC tax
leaks scandal.
Putting in place systems, processes and
standards to avoid conflicts of interest and increase the scrutiny of the
sector is vital given its size and influence, and the taxpayer dollars flowing
into its coffers.
Karen Chester says if companies want to
tender for government consulting work, they must be “a proprietary limited
company, and thus subject to directors’ duties”. David Rowe
For decades, successive governments have been
happy to allow this under-regulated industry to quietly expand its reach and
its profits. As such, consultants should expect to stay in the regulatory
spotlight for a long while to come.
But the smoke signals coming out of Canberra
suggest the report won’t tackle the much bigger question hanging over the
sector: whether the government should force the big four accounting firms to
adopt a new structure following the tax leaks scandal to improve accountability
and reduce the potential for conflicts of interest.
As a consultation
paper published by Treasury last month made clear, the ramifications of any
changes are huge, and careful consideration is warranted. And so the Senate
inquiry’s report is unlikely to advocate for any of the proposals put forward
in the past year, including Allan Fels’ push for
structural separation of the big fours’ audit and consulting businesses,
and Graeme Samuel’s
argument in favour of regulating partnerships as corporations.
But that doesn’t mean these reforms are off
the table. And as the discussions about structural change continue in the
coming months, a case from 20 years ago suggests a simple regulatory fix may be
within reach – even if it is one that consultants would probably loathe.
In 2004, The Australian Financial Review
broke the story of the hacking of economic consultancy Access Economics by a
former employee who had been hired by a rival firm, Acil Tasman.
At the time, Access was led by Karen Chester,
the former deputy chairwoman of both ASIC and the Productivity Commission. As
she recounted in a speech to mark the firm’s 30th anniversary in 2018, the
Access board took the unprecedented step of reporting the hack to the
Australian Federal Police’s newly created Australian High Tech Crime Centre,
making Access the country’s first reported corporate victim of cybercrime.
Access secured a settlement from Acil, and
the hacker was eventually convicted. But ASIC also went after two Acil
directors for failing to exercise their duties in good faith. They pleaded
guilty in the Victorian County Court in June 2008.
Speaking on Monday, Chester says the case was
an example of what happened on a much grander scale at PwC; in both instances,
confidential information illegally obtained was misused.
“But importantly for today, this story tells
how the corporations law efficiently dealt with the offending consulting firm:
the two directors were banned for many years,” she says.
“In all ways it’s a mirror, albeit a minnow,
image of the PwC incident. It points to a simple solution – a solution that
requires no new legislation or consultation. The government must simply require
that to tender for consulting work, you have to be a proprietary limited
company, and thus subject to directors’ duties.”
The consulting sector would likely hate the
idea. What might look simple for the government would involve huge amounts of
work by the firms, which may be forced to change their partnerships that have
long been central to their business models and their governance.
But Chester’s proposal would certainly force
a greater level of accountability on those at the top of big consulting firms,
and give leaders much less scope to hide behind a “bad apple” defence.
Moreover, it raises a simple but important
question: why shouldn’t some of the biggest and most influential organisations
in the country be subject to the laws and obligations that the smallest
government suppliers must work under?
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James Thomson is senior
Chanticleer columnist based in Melbourne. He was the Companies editor and
editor of BRW Magazine. Connect with James on Twitter.
Email James at j.thomson@afr.com
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