The leaking of confidential tax information, in breach of non-disclosure agreements, by PwC personnel, and its exploitation by a firm that makes a significant chunk of its US$50 billion global revenue from facilitating tax avoidance, isn’t the first time PwC has run afoul on conflict of interest at the Commonwealth level.
In 2015, while implementing the Coalition’s mass surveillance “data retention” program, the Attorney-General’s Department (AGD) hired PwC to develop a costing model for industry implementation of the scheme to force communications companies to bulk-store Australians’ personal data, in order for industry to be part-compensated through a grants program.
As Crikey has long chronicled, the AGD not merely has a near-total indifference to the most basic rights of Australians, but it also is serially incompetent, especially when it comes to IT.
PwC had, as clients, a number of communications and IT companies, including Telstra, perhaps the main beneficiary of any government program to offset the industry cost of its surveillance program. It also had a “strategic alliance” with a major software vendor offering a data retention product.
What steps did the AGD and PwC take to address this fundamental conflict of interest? PwC told the AGD about Telstra before it was hired, but waited until after it was hired to admit it had internet service providers as clients as well. It took another company to point out to the AGD that PwC was working with a software vendor that would end up being a beneficiary of the grants.
The AGD didn’t bother getting conflict of interest declarations from PwC about the issue because it didn’t think there was much potential for conflict of interest — and thought it would be covered by generic declarations signed by all consultants. In doing so, it violated its own guidelines about dealing with conflict of interest in procurement.
All this was laid out in a forensic Australian National Audit Office (ANAO) report in 2018.
The data retention case contains little of the high stakes and international dimension that characterise the PwC tax law leak, so brilliantly detailed by Neil Chenoweth and Edmund Tadros at the Financial Review throughout this year. But it demonstrates the paradox at the heart of the large consulting firms working for governments.
Large consulting firms — the big four, McKinsey & Company, BCG — inevitably have large numbers of corporate clients, many if not most of whom will be directly affected by government policy at some stage, whether specific industry programs like a data retention grants scheme, or general policies like tax. So, equally inevitably, when they provide advice to governments, they have a conflict of interest in a way that no public servant ever does.
And the AGD isn’t the only one poor at managing conflicts of interest. It’s a systemic problem in the public service, one that has naturally worsened as the size of the government’s annual spend on consultants surged under the Coalition — more than doubling over the past decade, according to the ANAO, to nearly $900 million per annum, including a total of over $1.1 billion to the big four for consultancy services alone. For the ANAO, the failure of the public service to effectively manage the conflicts of interest that are foundational to its use of consultants is a persistent source of angst, to which it has devoted entire publications explaining what good practice is and isn’t.
It’s not a problem confined to Australia. Last year, a US Congress investigation showed that McKinsey had simultaneously advised the US Food and Drug Administration and opioid manufacturer Purdue. McKinsey ended up paying a US$573 million fine for helping Purdue “turbocharge” opioid sales, killing tens of thousands of Americans, while working with the FDA to improve drug safety. Indeed, the same McKinsey partners were simultaneously working with the FDA on drug safety while advising Purdue on how to combat the FDA’s efforts to improve drug safety.
The worst Australian example of big four conflict of interest in recent times before PwC was at the state level, in KPMG’s disgraceful dual roles in advising different NSW departments about the discredited Transport Asset Holding Entity, which led to a senior then-KPMG partner being pressured by KPMG leadership to change his advice to meet the demands of another, more senior client.
But how many times has the lack of a parliamentary investigation, or the absence of an ANAO audit, meant large consulting firms were able to exploit their dual links between governments and corporate clients?
And even when departments do attempt to address conflicts of interest by major consultants, the nature of large consulting firms defeats them. Earlier this week, in yet another report revealing bungling in the Department of Home Affairs, the ANAO found that the department had decided to exclude commercial adviser Deloitte from a major IT procurement process, only for one of the relevant Deloitte partners to begin advising another of the tenderers involved.
Sometimes the sheer breadth of consulting firm clients defeats efforts to overcome conflicts of interest: the Australian Renewable Energy Agency was criticised by the ANAO for using some of the same consultants it was paying grants to, or who were working with grant recipients — including one of the big four — to evaluate its programs.
Despite “good practice” requirements for conflict of interest management in public service departments, and the blithe assurances of large firms about “Chinese walls”, conflict of interest is in the very nature of large consulting firms. It’s central to their business model, rather than being a bug that can be fixed.
There’ll be more McKinseys, more PwCs, as long as large consultants are used by governments. And public servants are either unwilling or unable to prevent it.
I wonder if this current Labor mob will be genuinely bold enough to stand up for and invest in the inherent value of a robust public service with enough internal capability and self-confidence to eschew paying for inflated external advice ? This whole sordid mess really needs to give the lie once and for all to the notion that the private sector can be trusted to promulgate the public interest. Where external market feedback is absolutely required as an input into policy development, then these rapacious consulting wolves need to be kept on a very tight leash.
Don’t hold your breath Jules. It’s all a part of the post-industrial capitalist mind-fuck. They just find newer and better ways to keep wealth in the hands of their own kind while blaming us for a lack of productivity.
All this canoodling between pollies and consultants is built into the system, isn’t it? All the private school alumni doing cosy biz with each other on the basis that it’s who you know, not what you know. My stockbroker went to school with your consultant, who has regular Friday night drinks with our favourite mining lobbyist, who talks to my mate in the PM’s office, who has a yacht moored next to billionaire whatsisname’s little motor cruiser that sleeps twenty.
We’re all capitalists together and we need to make sure we stay on top of the heap, in case the ‘not us’ people start to get ideas.
I have an idea: bring on the tumbrils.
Many excellent points made there. The Big Four appear to use exploiting inside information and their conflicts of interest as the real basis of making profits for their businesses. They probably think of it as synergy.
How difficult it will be to do anything about the infiltration of the APS is set out clearly in The Conversation today in an article ‘Blacklisting PwC won’t stop outsourcing: here are 3 reasons it has become embedded in the Australian public service’, which covers all varieties of outsourcing, not just consultants.
Very good question. Given how very hard, difficult and probably thankless it is the fix the spreading corrupting influence of these corporate bodies within government and the APS, and the likely resistance of government and the APS to arrangements that are very cosy and agreeable to them, the more obvious remedy for our current ills is to knee-cap the ANAO and put a stop to it producing all these embarrassing reports.
The only thing I disagree with is that I reckon there are many other scum than the Big 4, notably the merchant bankers many of whose alumni infest the conservative side of politics and our regulators.
I was not trying to imply that the conduct of the Big Four was exclusive to the Big Four and the rest of the corporate world is entirely virtuous and ethical.
If anyone can explain why we paid “The Firm” mega millions during the previous government’s Covid fiasco…………
Or was this another of Smirko the dud shoveling our money into corporate pockets?
You are correct. PWC was paid quite a bit to come up with the Morrison Government’s COVID Strategy and the Vaccination Mobilisation Plan, curious given no one had had any experience in either area. There’s no such thing as a refund if the plan doesn’t work but then consultants usually just recommend what they are told by their clients. It has even been said out loud that a plan is accepted more positively if it comes from a consultant rather than the rank and file.
“Howard’s unAustralian Neo Libs / “neo lib “International investment corp National Party” and “neolib Labor”
“neolib Labor”…absolutely correct. My hopes for something better than rock bottom Morris-scum performance absolutely gutted. Where to now, politically???
I think that it is time for us to make a start by offering scholarships for the best and brightest, in competition with all the big firms.
The young are being indoctrinated at university in the “Make us lots of money”, with a vacuum where the ethical training should be.
How do I know?
Grandchildren, successful and articulate, bright with promise and yet, not connecting their parents ethical educations with their career.
Less any creature be caused unnecessary discomfort, university students researching scientific questions at Australian universities are subject to onerous ethics training and approvals processes which they are expected to apply when released into the wide world. Ethics committees which pontificate on such projects always include “interested members of the public” mandated in the mix of members. However, their student peers imbibing economics and business administration are subject to trivial oversight if any at all – let along an expectation of ethical behaviour beyond the madrassa.
why ya will not get a job after forced retirement or slavery to prop up the old boys lubs who run the gullible
learnt helpkessness or bad / poor leadership ?
sic helplessness
See the article I referenced in The Conversation, ‘Blacklisting PwC won’t stop outsourcing: here are 3 reasons it has become embedded in the Australian public service’.
The only thing that has surprised me about this so-called scandal is that anybody is surprised (shocked! Shocked!) by it. The feeding of confidential government information to other clients isn’t a bug, it’s a feature. And as Bernard’s piece makes clear, shifting business from pwc to other consulting firms will change nothing.
I hardly think anyone half awake is surprised – see Bean Counters by Richard Brookes. In fact I reckon many would believe, after years of being fed the neo-liberal mantra of how good it is to have ‘competition’, that anything that led to a “competitive edge” was just ‘good business’. Other than scale, how is PWC trying to swindle the taxpayer any different from say, charging fees to dead people, as we learnt in the banking royal commission, or more recent rots with NDIS? Worth a try – all part of normal business and being competitive!
of course Baird is director of aged care multinationsl developer/ property capital investment scam
and lovely old woman tasered by boofheads- where accountability for that “client ” woman hunan being
The fundamental problem here is the neoliberal conviction that the solution to every problem is the free market. This is a conviction that has always been held by the LNP and, as Mr. Rundle frequently points out, has become a foundational principle of much of modern Labor.
Clearly, though, the PwC example proves that the free market cannot solve all problems.
There was an interesting article by Prof Simon Longstaff in The Conversation a few days ago (Self-interest versus public good: the untold damage the PwC scandal has done to the professions (theconversation.com)) in which he points out the difference in ethical responsibilities of actors in the free market and of those, such as consultants, who act as professionals. Basically, the free market exists to meet the needs and wants of its customers. Professionals, on the other hand, are required to act in their clients’ best interests. Unfortunately, the two do not always align.
Given this difference, it seems to me that the basic concept of a consulting firm such as any of the Big 4 has conflict of interest baked into its core. On one hand, they need to survive and succeed in the free market (that is, act in their own best interests), on the other hand they have an ethical obligation to act in the best interests of their clients. No amount of signed agreements to the contrary, handshakes over secret late night dinners or public service probity boards can remove this conflict.
Well said. It continues to astound me that if you attempt to to discuss the place of the “free market” in areas like health, education and energy supply the trite response from many people, from baby boomers down, is; “well communism / socialism doesn’t work”. The idea that a “free market “ does not exist here, or anywhere else, seems beyond the comprehension of a very large percentage of our nation’s population.
True. There is an extreme, possibly wilful, ignorance deployed in defence of neoliberal orthodoxy. Another very significant element always missing from the worship of the mythical free market is recognition of natural monopolies which do not belong in any market, free or otherwise, and which should be regulated by the government or simply nationalised for the public good.
For example, the UK’s railways. Thatcher had the good sense to leave the nationalised British Rail alone while she was privatising so much else, but then in the early 1990s John Major’s government recklessly ignored all expert advice and broke British Rail into an unfathomable chaos of different companies with different roles, requiring a huge new complex of managers, consultants and lawyers to oversee the interactions of all these new companies. (So, there are some clear winners here who are doing very well indeed.) Each of the companies requires its own managers and staff, including sufficient train drivers for each train operating company, which results in great duplication and more wage costs without providing any operational resilience, e.g. because it’s not possible for train drivers from one company to cover for unavailable train drivers of a different company. In similar vein, the train operators no longer cooperate to ensure connecting services work properly, frequently stranding passengers, and the lack of cooperation with the track engineering companies adds more chaos. In the days when British Rail ran it all such cooperation was automatic. A train ticket for one company’s train service will not usually be accepted by any other train company.
The cost of subsidising this insane mess is many times greater than the old British Rail ever needed and the tax-payers are being robbed blind. The new train companies keep missing their performance targets despite every effort to set them so low they should be unmissable, the trains get slower and less reliable, the use of replacement bus services has become a chronic imposition on passengers (disastrous for passengers who because of disability cannot use a bus) and the fares keep rising ahead of inflation; yet no government ever admits this privatisation failed. It was bound to fail. A national railway system is a natural monopoly. And finally, despite all I just said, ‘passengers’ are no more. They’ve been abolished, and replaced by ‘customers’.
yes translink transurban what a loss of our own money on our sovereign lands on tge instruction of dud neo lib
I worked in Taiwan recently. AfterWW2, the Govt wholeheartedly rejected neocon economic principles. They regarded their role as supplying the essentials for life under Govt control WITHOUT HANGERS -ON, OR PROFIT MARGIN. The supply of Govt controlled water, gas, electricity, health education, and some public transport is reasonably priced or free to the public. Mortgage and bill stress is non existent. Road rage is non-existent. T he destruction of social bonds so evident in the US, and increasingly evident here, is IMHO in general due to adherence to this clearly failed neocon economic model. Radical change is needed. Political self-interest and constant gaslighting of the evidently gullible sheeple is insulting, tho most don’t recognise BS when exposed to it. And the BS flows constantly. Dutton, Taylor, and their crowd are prime candidates.
Of course, the many people with this view also vote. Which is a problem of democracy when $billions are available to run fear campaigns to reinforce these views.
nothing to do with age unless you include tge genius class doing all the myopic cutting at the call of neo lib directives
You are right, the “theory” supporting using the “free market” for public goods is mostly self-serving ideological twaddle. But in this case one can double down by saying that, in order for the theory to hold any water, there has to an actual competitive market. Thus the choice of a consultant with no conflict might be available from among a wide variety of them. That is almost the opposite of what we have, indeed Australia pretty much aids and abets any formation of oligopoly. So you cannot avoid conflict of interest.
This was all pointed out and ignored in the 1990s. Similarly, market theory applied to control inflation won’t work when the economy is dominated by actors who can set prices free from competition. Assume we have a market is the beginning false assumption we keep being asked to swallow. Both classical economics, and later Marx riffing off it, could see capitalism and capitalists would always rationally seek the destruction of competition and competitors. In practice we see our politicians are not friends of markets or competition, rather they are friends of existing capitalists and their cosy positions and entitlements.
Tony Abbott euphemism about we’re cutting “red tape”