Tuesday, March 12, 2024

Stubbins ‘I had a wonderful’ 30 years in auditing, says former PwC CEO - Experts concerned over ASIC’s lack of phoenixing prosecutions

Taxpayers take their lead from their advisers. Therefore, it’s critical that advisers ensure their own tax and super affairs are in order.”

Tardy tax advisers owe millions

‘I had a wonderful’ 30 years in auditing, says former PwC CEO

Former PwC Australia acting CEO Kristin Stubbins’ surprise appearance at a parliamentary inquiry last week was mostly about the lifelong auditor wanting to make clear that the firm’s tax leaks scandal had nothing to do with the audit and assurance arm she once led.
Ms Stubbins also wanted to reinforce the message already expressed by the current top auditor at the firm– Sue Horlin – that the firm should rebuild its public trust by emulating the “best practice” of PwC’s audit and assurance division.
Kristin Stubbins, former PwC Australia acting CEO, during a hearing with the Parliamentary Joint Committee on Corporations and Financial Services, at Parliament House in Canberra on March 5.  Alex Ellinghausen
In her testimony, Ms Stubbins said that despite being forced out of the top job by PwC International against her will, she regarded her 30 years at the big four firm as ”wonderful” and “fantastic” and wouldn’t hesitate to recommend professional services as an ”outstanding career for a young person”.
Having retired from the PwC partnership in January, Ms Stubbins gave her evidence to the inquiry last week – about how the big four consulting firms were structured – in a personal capacity.
Her appearance was closely watched inside and outside the firm – and her frank testimony didn’t disappoint.
She said she had been “completely stunned” to learn about the extent of the firm’s tax leaks scandal when she became acting leader and that she felt the leakers had “a flagrant disregard for confidentiality”.

Tax matters ‘described as largely resolved’

Ms Stubbins said that the firm’s executive board, which she was a member of between 2020 and 2023, was only “given brief verbal updates on various legacy tax matters that were being dealt with, which were described as largely resolved”.
“So if I can contrast the discussion around the audit profession versus tax, there was not at the board level, that same level of focus and discussion around the tax matters,” she told parliament.
Ms Stubbins joined the executive board in 2020 and was promoted to the head of assurance, which includes audit, in 2022. At the time former CEO Tom Seymour was head of the firm.
She was head of assurance for less than a year before being tapped to take on the acting CEO role during the darkest days of the leaks matter. The scandal involved a former PwC tax partner sharing secret government information within the firm.
She repeatedly noted that the report into PwC’s governance and the tax leaks matter by Dr Ziggy Switkowski found that the audit and assurance practice had “model” governance and risk management practices.
“I am an audit partner by training. I was one of our most senior audit partners ... Dr Switkowski calls out [that] the assurance practice, as it was being run, modelled best practice in terms of the way we looked at things,” she said.
“It’s obviously a business where we need to have the public interest in mind – ‘are we acting on behalf of shareholders when we are auditing companies?’”

‘My decision’ about eight partners

She contrasted this with the firm’s tax division where “somewhere along the way profit became ... more important than purpose there. But in the assurance business, I don’t believe that ever occurred.”
Ms Stubbins also defended a media release released during her leadership which detailed how PwC had “exited or [were] in the process of being removed from the partnership” eight partners for “professional or governance breaches”.
She said that the eight individuals named by the firm had “failed to meet their professional responsibilities. And they were all with respect to tax matters.” One of those partners, Richard Gregg, successfully sued the firm last year for failing to follow proper process in its attempt to fire him,
Ms Stubbins said she had made the call about the eight partners.
“[It] was my decision. [PwC International] were aware, but it was my decision on the third of July when I was still the acting CEO,” she said.

‘Wonderful career’

Ms Stubbins also said she was “very disappointed” at being replaced by international partner Kevin Burrowes in the top role but remained upbeat about her overall time at the firm.
“I had a wonderful career. I really did ... every profession has issues and ours is in the spotlight at the moment,” she said.
“But I learnt a lot about how corporations operate. I’ve worked with some of the most inspiring companies around the world. I’ve had a fantastic career. And I would hope that the last few months don’t define my career because it was a 30-year, very successful, career. And I ended up being the first female CEO under very difficult circumstances of PwC.
“I had a fantastic career at PwC. And I would recommend it to young people today to really make their way in the corporate world and understand a breadth of detail around the way corporations operate.” 
Ms Stubbins declined to comment for this article. Her LinkedIn profile has her occupation as: “Working on my next chapter.”
  • PwC Australia chief operating officer Liza Maimone has announced that she will retire from the partnership in the coming months. Ms Maimone is the former managing partner of PwC Australia’s consulting arm and has been at the firm for 16 years.
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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

 Experts concerned over ASIC’s lack of phoenixing prosecutions

Experts say little has changed in illegal phoenixing since the $105 million Plutus tax fraud, as the building industry deals with a wave of claims about multi-million dollar tax-dodging schemes operating over decades.

University of Sydney Business School Professor Clinton Free found in a recently published analysis that despite the former Morrison government introducing laws to combat illegal phoenixing in 2020, the corporate watchdog had not yet used the new powers to bring criminal or civil prosecutions.
Professor Clinton Free from the University of Sydney Business School says funding and motivation may matter more than laws. 
The ATO defines illegal phoenix activity as liquidating, winding up or abandoning a company to avoid paying debts. A new company is then started to continue the same business activities without the debt.
“Post-Plutus in 2020 there was an attempt to introduce reforms to give more powers to ASIC and increase civil and criminal penalties for bad action in this space,” Professor Free, an expert in accounting, governance and regulation, told The Australian Financial Review.
“If you review ASIC’s releases and reports it doesn’t look like a heap of activity since then and the question is why?”
The analysis was published in the Company and Securities Law Journal at the end of last year. It preceded reports of massive tax dodging schemes under way for more than 10 years and using multiple companies, including a suspected record $180 million scam.
The Coalition introduced the 2020 laws in response to the elaborate $105 million Plutus Payroll tax fraud that took place from 2014 to 2017. Adam Cranston, son of the then deputy taxation commissioner, was one of the lead architects of the scheme.
The laws created new offences such as involvement in a company making “creditor defeating dispositions”, banned directors backdating resignations, introduced a “last director rule”, and gave new recovery powers to ASIC and liquidators.
However, Professor Free’s analysis, co-written with Associate Professor Juliette Overland and lawyer Charlie Guerit, found the laws had “not, at this stage, significantly impacted regulatory activity” and enforcement activity had even dropped due to the pandemic.
“Overall, enforcement of illegal phoenix activity has seemingly decreased when compared to the years preceding 2020, with no criminal charges and limited private actions pursued under the new legislation,” the paper concluded.
“This enforcement record suggests that the 2020 reforms have not changed the landscape as, although the offences themselves may serve as a disincentive to misconduct, it doesn’t necessarily make much difference unless people also see that the consequence will be real.”
According to ASIC reports, from 2020 until the end of 2022 it disqualified 23 directors and successfully undertook three criminal prosecutions resulting in convictions for illegal phoenix activity. Three more prosecutions were ongoing at the start of 2023.
But given ASIC said in 2021-22 it had been involved in “several phoenix taskforce operations and conducted joint surveillance”, the academics remarked “it is surprising (if not concerning) that no prosecutions have yet been pursued for illegal phoenix activity that occurred while Australia was in the midst of the COVID-19 pandemic”.
ASIC did not return requests for comment before publication.
Liquidators have said that the pandemic all but halted liquidations, and resulted in many insolvency experts at the regulatory agencies moving to other areas. The Australian Taxation Office has said it now has a “renewed focus” on recovery actions.
The 2020 reforms are set to be reviewed by early 2025.
The academics recommended adopting laws in the United Kingdom where creditors must approve a substantial transfer of assets to a related company or an independent evaluator must assess the transfer’s reasonableness and report to creditors.
They also referred to New Zealand banning directors of a liquidated company from being involved in a phoenix company with a similar name.
However, they acknowledged the remedy is likely not more laws but more enforcement which “depends upon funding and motivation”.
“It is widely considered that the federal government’s under-resourcing of ASIC has severely limited its enforcement capacity in many areas,” the paper said.
Former ASIC chairman James Shipton has said ASIC is increasingly reliant on the enforcement special account, which funds litigation of “significant public interest” and which he said requires the Treasurer’s case by case approval.
Assistant Treasurer Stephen Jones has said the government provided more than $220 million in last year’s budget to expand the serious financial crimes taskforce because “criminals are using sophisticated approaches to commit tax fraud”.
This week The Australian Financial Review reported that liquidators are pursuing the former owner of a $14 million Sydney trophy house over an alleged scheme that used a Sydney formwork company to avoid millions of dollars in PAYG tax.
Despite being by far the biggest creditor, the Australian Taxation office did not fund the liquidator’s recovery action. Asked why, an ATO spokeswoman said it “cannot comment on the tax affairs of any individual or entity due to our obligations of confidentiality and privacy under the law”.
David Marin-Guzman writes about industrial relations, workplace, policy and leadership from Sydney. Connect with David on Twitter. Email David at david.marin-guzman@afr.com