Business Daily Media

The Times Real Estate

.

‘We remain concerned’: Senate inquiry into PwC tax scandal calls for reform, but overuse of consultants will likely continue

  • Written by Stephen Bartos, Professor of Economics, University of Canberra

The final report[1] of a Senate inquiry kicked off by the PwC scandal has finally been released.

The inquiry, which began in March last year, looked at how consultancy firms work with the broader Australian public service. It focused initially on claims PwC was party to internal government discussions and used this confidential information to help its clients devise tax minimisation strategies. The shocking revelations, published by the Australian Financial Review[2], led to the resignation of then-CEO Tom Seymour.

This issue affects every Australian. Corporate tax avoidance hurts the budget bottom line. It means less money for schools, hospitals, pensioners or cost-of-living relief. PwC’s actions potentially allowed private businesses to pay less tax.

The Australian Taxation Office moved to fix the problem after the breach was discovered. If it had gone undetected, Australian taxpayers would have had to pay more or the government would have had a larger deficit.

The Senate inquiry examined what happened in the PwC case and how government departments use consultancy firms more broadly.

What did the report recommend?

The recommendations included:

  • PwC promptly publish the names and positions of those involved in the breach of confidential government information

  • the Department of Finance guidelines require government contracts to include a clause stating consultants have a duty to act in the public interest when doing government work

  • better training for officials doing procurement work to ensure Australia gets value for money when consultants are used

  • contracts are designed to ensure “transfer of knowledge” from consultants to public servants

  • the government’s Supplier Code of Conduct include a requirement for service providers to act in the public interest and follow professional standards that align with “public sector values”

  • the Department of Finance have clearer guidelines on what constitutes a conflict of interest and track conflict-of-interest breaches in a register.

The report also called for

the Australian Law Reform Commission, or other appropriate body, to undertake a review of the legislative frameworks and structures of partnerships in Australia with particular focus on partnerships in excess of 100 partners.

It suggested the Senate pass an order calling for the finance minister to table biannual statements on public service spending on consultancy contracts valued at A$2 million or more.

It also noted:

the growth in expenditure on consultants has approximately trebled every decade for the last 30 years.

Scathing interim reports

Today’s report follows two scathing interim reports[3].

The first one, titled A calculated breach of trust[4], accused the firm of not properly cooperating with the inquiry.

The second report, titled The cover-up worsens the crime[5], said[6] PwC actually did misuse confidential government information, adding that

The failure of PwC to be completely open and honest as per the committee’s recommendations in its first report is reflective of PwC’s failure to genuinely change. The committee does not see how PwC can recover their reputation while it continues to cover up.

Today’s final report noted committee members “remain concerned” PwC had not been transparent enough about what exactly happened in the scandal.

Liberal Senator Richard Colbeck and Labor Senator Deborah O’Neil react to PwC Australia CEO Kevin Burrowes during a public hearing of the Inquiry into management and assurance of integrity by consulting services
Today’s report follows two scathing interim reports from the senate committee conducting the inquiry. AAP Image/Lukas Coch[7]

A systemic problem

Today’s report is a start. It’s balanced in that it recognises that sometimes employing consultants is the appropriate thing to do. And it’s good to see the recommendations in relation to increased transparency.

The notion you can rely on consulting firms to follow professional standards that align with “public sector values”, however, is somewhat optimistic.

So is the idea that contracts should require consultants to act in the public interest. Most consultants today claim they already do this.

Overall, the systemic problem remains. Consulting firms have come to take such a prominent part in public life, and government departments have come to rely on them excessively because the public service has lost crucial skills. Australia is much worse off as a result, because we don’t have the capacity to do things the public service used to be able to do.

Part of this was due to cuts to the public service. But there was also an ideological belief from some governments that giving work to private sector consultants was a good thing to do, without proper recognition of the risks.

Restrictions on public servants taking up positions in private consulting firms after they quit the public service would go a long way toward solving the problem.

As it is, there is massive incentive for those public servants to give very costly contracts to the consulting firms and then go and work for those same consulting firms for their next job. There’s a real conflict of interest there, and taxpayer money is at stake.

Today’s report recognises this “revolving door” is an issue but doesn’t have a clear recommendation to address it.

The overuse of consultants is likely to continue to be a problem.

What now?

The interim reports called for culture change within PwC. And it’s true PwC has already lost one CEO because of this. They have said they will change but only time will tell.

There’s no guarantee any of the report’s recommendations will be implemented. Governments are not obliged to accept such recommendations at all. In fact, Australia is still waiting for implementation of key recommendations from the Royal Commission into Aboriginal Deaths in Custody in 1991, as well as all the recommendations from the banking royal commission, which tabled its final report in 2019.

The move away from public servants and toward consultants has been going on for decades. It will take decades to rebuild public service capability. We can’t expect quick fixes.

The government has promised to reduce public service reliance on consultants, with Finance Minister Katy Gallagher leading the charge[8]. She will need ongoing persistence for the policy to succeed.

The hooks of the consulting industry are deeply embedded in public service departments. All it would take would be a year or two of inattention from ministers for consultants to regain their lucrative “business as usual”.

References

  1. ^ final report (parlinfo.aph.gov.au)
  2. ^ Australian Financial Review (www.afr.com)
  3. ^ interim reports (www.aph.gov.au)
  4. ^ A calculated breach of trust (www.aph.gov.au)
  5. ^ The cover-up worsens the crime (www.aph.gov.au)
  6. ^ said (www.aph.gov.au)
  7. ^ AAP Image/Lukas Coch (photos.aap.com.au)
  8. ^ leading the charge (www.financeminister.gov.au)

Authors: Stephen Bartos, Professor of Economics, University of Canberra

Read more https://theconversation.com/we-remain-concerned-senate-inquiry-into-pwc-tax-scandal-calls-for-reform-but-overuse-of-consultants-will-likely-continue-232251

Cutting edge AI technology designed for doctors to reduce patient wait times launched in NZ

New Zealand specialist doctors now have access to Artificial Intelligence technology to help reduce patient wait times and experts say it could be...

Launchd Takes Off: Former AFL Stars Lead Tech-Powered Platform Set to Disrupt Talent and Influencer Marketing

Backed by Institutional Capital, Launchd Combines Five Leading Agencies and Smart Technology to Deliver Measurable Results Influencer marketing i...

Meet the Australian fintech unlocking rewards for small businesses

Small businesses make up 98 per cent of all businesses in Australia, yet they continue to bear the brunt of economic uncertainty. According to Credi...

Teleperformance (TP) Business Insights Report Reveals Key Shifts in Consumer Behaviour

TP’s Business Insights report  into consumer behaviors and preferences, taking in more than 57,000 respondents across 19 sectors, is shedding new li...

HubSpot launches platform-wide AI tools to help businesses close the adoption gap

HubSpot today unveiled more than 200 updates across its customer platform to help businesses grow better. The release introduces smarter tools, new AI...

Why Every Leader Needs a Personal Branding Strategy in 2025

One of the best investments you can make in 2025? Your Personal Brand.In today’s competitive and digitally driven business world, authenticity and...

Sell by LayBy