A year and a half after the federal government was first informed of PwC misuse of confidential government information, the Senate inquiry has zeroed in the lack of unified regulatory oversight and professional standards for professional consultants, and called for a major review of the legislation governing partnerships.
Regulation and integrity assurance
The crossbench inquiry was unequivocal in its finding that the partnership structure of large consulting firms does not deliver adequate regulatory oversight.
“It has become clear that large partnership structures, which operate effectively as corporations, and often as multinational corporations, are not subject to the same regulatory oversight and declaration requirements as those constituted under a corporate structure,” the report states.
“The partnership structure brings with it the rationale that all partners are jointly and severally liable and therefore have an interest in maintaining scrutiny and oversight of operations.
“However, the events of the last two years at PwC demonstrate that in organisations of that scale it is simply not possible for a partner to have the level of oversight required to effectively protect their individual interests. Many partners of PwC have learnt that lesson at their own significant cost in the aftermath of that scandal.”
Finding that there was effectively no regulatory oversight infrastructure to monitor and provide oversight of organisations at the scale of PwC, KPMG, Deloitte, and EY, the inquiry has recommended that the likes of the Australian Law Reform Commission review the legislative frameworks and structures of partnerships in Australia with particular focus on partnerships in excess of 100 partners.
The inquiry explored the regulatory gaps created by the absence of a specific registration regime for consultants, unlike those for accountants, lawyers or engineers.
“This can result in some consultants being subject to no oversight and others being subject to multiple overlapping oversight and regulatory regimes (for example if the person is also a legal practitioner or a registered tax agent),” the report states.
“As a result, some standards apply to some consultants, creating an uneven gap in regulation.”
To remedy this, there is a recommendation to require such organisations to report annually to Joint Standing Committee on Corporations and Financial Services; and
require these same organisations to appear before that committee to provide oversight on the operation of the relevant standard.
Rebuilding public service capability
Since the 1980s, the amount the federal government has spent on consulting services has roughly trebled every decade.
“Australia’s spending on consultancy services is proportionally greater than any other country,” the report states.
“The increased use of consultancy services has not been accompanied by an increase in APS capacity to effectively conduct procurement activities and manage contracts. Instead, increased use of consultants has limited the capability growth of the APS [Australian Public Service], given rise to occasions of serious conflict of interest and been accompanied by questions about transparency. It has also resulted in enormous costs to the APS for work that is often opaque and, in some instances, raised genuine questions regarding value for money.”
- Among a raft of recommendations aimed at rebuilding public service capability and independence, the report called for:
- Requiring all government contracts worth more than $15 million be approved by a committee
- Updating all federal government contracts to include a clause that states service providers have a duty to act in the public interest
- Further training of all APS procurement officials to ensure value for money in any contracts with consultants.
- Ensuring that all APS contracts with consultants make provision for transfer of knowledge from consultants to the APS
- Developing a central register for conflicts of interest breaches.
Displeasure at lack of transparency
The inquiry also criticised PwC’s continued reluctance to abide by some of its earlier recommendations.
“In particular, the failure to release the now infamous Linklaters advice which relates to the international elements of this matter, leaving the committee little option but to conclude that the failure to release this material is to protect the organisation from further scrutiny and consequences of their actions.”
