Australia remains a serious international laggard when it comes to regulating the big four accounting firms, which are behind much of tax revenue lost to multinational tax avoidance and guilty of industrial scale conflicts of interest between their roles as auditors and as consultants. They have also emerged — not coincidentally — as dominant sources of political donations at the same time as they have taken advantage of public service cuts to secure billions in contracts for consultancy and policy advice services to government.
Australian politicians have refused to address the persistent issue of the conflict of interest between the major audit firms’ audit and consultancy roles, despite ASIC flagging the issue over and over. In contrast, the UK competition regulator has just demanded that the big four be split into separate consulting and auditing arms and that major companies be required to hire two auditors. The Brits simply got tired of conducting ASIC-style reviews. “Just carrying on doing more reviews is not going to take us very far. We now have to make a start and that’s going to require legislation,” the head of the Competition and Markets Authority said.
Here, ASIC is left conducting surveys that flag significant conflict of interest issues, with barely a flicker of interest from politicians.
At least in one area, the big four may come under greater pressure after the election. Last year, Labor promised — somewhat vaguely — to curb contracting out in the public sector, especially in IT, and remove the current cap on the number of public servants in each agency, albeit within existing funding. Yesterday, however, the Greens committed to capping the level of agency expenditure that could be directed to outsourced contracts to 7.5%, which would act as a check on the rapidly growing flow of taxpayer money to E&Y, KPMG, PWC and Deloitte, as well as other major consulting firms like BCG and McKinsey.
The big four are at the centre of a profoundly troubling web that links taxpayer funding and the provision of policy advice — often from consultants with no specific sectoral expertise — to millions in political donations to the major parties, the systematic undermining of government tax collection worldwide by companies using the services of the big four and the loss of trust in large companies because of conflicted auditing. These companies help create the problem of governments lacking revenue to properly fund their public sectors, and then offer to fix the problem by offering their own services, while auditing companies with which they have lucrative commercial arrangements. The relentless expansion of big four government services embeds them in the heart of a government in a way that hasn’t been seen before in the Australian public sector, with apparently little thought given to the conflict of interest this creates — they even provide services to Treasury and the Australian Tax Office, where tax policy is formulated and implemented, despite their role in facilitating multinational tax avoidance.
Across multiple fronts, the big four are a direct threat to good governance and Australia’s tax base. Capping their access to taxpayer funding is only a start in the process of addressing the threat.
Good.
One of the little-remarked upon problems with the Australian Public Service is that ever since John Howard introduced a freeze on the number of APS employees most agencies are forced to turn to these consultancies for their program delivery (and quite often for the policy work, as this article mentions). If a new program aims to have new employees, it either has to obtain offsets from other agencies (in which they lose staff, often permanently, so you can imagine how well that works), or the program has to rely on contract labour, which is overwhelmingly provided by Deloitte, PWC, KPMG, EY, or the insanely expensive Boston Consulting Group.
That doesn’t save the taxpayer money. Au contraire, a salaried APS Band 6 is about 1/3 the price a similarly skilled individual from PWC or Deloitte costs, and most of these government policy and delivery roles extend for more than a year so it’s not like it’s “casual” labor. The Government just looks smaller – it’s not actually smaller.
And that’s why these firms can donate so generously. Heaven forbid the government should put them out of a job.
In this I have to agree with you Mr. Keane; the ongoing privatisation of public interest matters which should be held close to the chests of the public service experts is extremely worrisome.
The ‘Private’ sector, especially the Corporate division, is often significantly less efficient than the Public Service if only in that it frequently chooses to ignore vital factors which a government controlled body would automatically include because of its National import.
Government information, which the Private sector would consider “Commercial in Confidence” if it were the authorities seeking enlightenment, freely passes to vested interests whose concern for the general public is limited to the amount of profit which can be gained from it.
Inevitably, those who the Government is charged with benefitting – the general population – lose out to profiteers and rent seekers.
What incentive is there to rein them in, when it’s only us plebs they’re pillaging, screwing and tossing on the scrap heap – while their conflict of interest is such a nice little earner with enough left over to buy/donate the right sort of political influence?
If the government could or was willing to employ the talent that the big 4 hire out to them, would we still have this issue?
This has been going on for thirty years and only occasionally has it been commented upon. The benefit of the big consultancy firms for the two main parties is that they almost always come out with the result that the parties–their paymasters–tell them to find. With a few exceptions, the media treat them as independent, though they are nothing of the kind. First and foremost they are professional ideologists for neoliberalism. But they also reap huge amounts of financial largesse through advising on privatisation and filling in for a diminishing public service at three times the price of employable public servants, as has already been noted.
With apologies for self promotion see Ch.5 of my book Mythologies of Change and Certainty in Late Twentieth Century Australia, (Australian Scholarly Publishing, Melbourne, 2000).
The Greens initiative should be wholly applauded, but it will be strongly resisted by many ex-politicians from both major parties who make a career out of consulting following their retirement.