‘Disregard for truth’: inquiry calls for greater scrutiny of private consultants following PwC tax scandal

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Embattled consultancy PwC should be “open and honest” about its breach of confidential government information, and the public service needs to be better equipped to ensure value for money is obtained from consultants, according to the long-awaited findings of a Senate inquiry.

The committee has also recommended stricter regulations for large partnerships, including PwC, be considered, and that consultancy contracts worth more than $2m receive greater government scrutiny.

The final report, published on Wednesday, includes 12 recommendations broadly designed to give parliament better oversight of consultants and contract expenditure, along with increased transparency.

It notes that Australia’s spending on consultancy services is proportionally greater than any other country.

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“A rapid increase in government expenditure on outsourcing public work to consultants over the last decade has hollowed out the public service,” the report said.

“This has eroded leadership, capability, working conditions, and policymaking capacity.”

The committee chair, Liberal senator Richard Colbeck, said it was vital that consultants were used appropriately by the public service to ensure “integrity is maintained and value for money is achieved”.

Colbeck said he took a pragmatic approach and “didn’t see the work of the committee to be judge and executioner”.

The recommendations are far more modest than those proposed by the Greens, which has called for a cut to spending on consultants and restrictions on PwC from obtaining government contracts.

The inquiry was triggered by allegations PwC Australia used its role as a government adviser to obtain confidential information to help its international clients avoid tax, rubbing against attempts by authorities to combat the rise of tax havens and other opaque structures.

The scandal raised questions about the structure of the broader professional services sector, dominated by the big four – PwC, Deloitte, EY and KPMG – and apparent conflicts of interests.

Two interim reports were also highly critical of PwC, and accused the firm of hiding behind legal professional privilege to avoid being transparent.

A PwC spokesperson said on Wednesday the firm was improving its practices.
“This includes significant steps to enhance our governance, culture and accountability, and we continue to work hard to rebuild trust and confidence with our stakeholders,” the spokesperson said.

If the recommendations are adopted, the parliament would establish a joint standing committee to review consultancy contracts. Services worth more than $2m would be more heavily scrutinised, and those valued at more than $15m may require parliamentary approval.

Deborah O’Neill, a Labor senator, said in a statement the report was “comprehensive in its account of historic and present ethical failures facing the consulting sector”.

She said the recommendations to improve procurement practices, if adopted, would give taxpayers more assurance their money is being spent well.

“For too long Australia’s consulting sector has been empowered to operate in opaque and shadowy conditions,” O’Neill said.

“This report documents the deliberate disregard for truth, ethical standards and public good that has been exposed within not just PwC, but all large consulting firms.”

In the fallout to the scandal, PwC divested its entire government consulting business in Australia to create a spin-off called Scyne Advisory. It has also overhauled its internal governance structures, although the bipartisan Senate committee has described some of the changes as largely “symbolic”.

The final report said that PwC had “failed to be completely open and honest and to genuinely change”.

The parliamentary committee and PwC’s head office have clashed over the firm’s refusal to comply with a request to release a report detailing the actions of international partners, citing legal professional privilege.

While the committee members have accused PwC of hiding behind legal privilege in order to contain the fallout to the Australian operations, the firm has argued it has a “basic legal right” to not release the report.

The Senate committee wants PwC to disclose the names and positions of those involved in the alleged breach of confidential government information.

The Greens, spearheaded in the committee by senator Barbara Pocock, said on Wednesday the report’s reforms needed to go further.

It has recommended prohibiting PwC, and any related entities, tendering for any government work for at least five years.

Pocock also wants the government to reduce its annual spending on consultants by 15% a year to reduce dependence on professional services firms, with savings funnelled into rebuilding public sector capacity.

“We need stronger action to put an end to conflicts of interest, to ensure value for money and to promote public sector regrowth after decades of neglect,” Pocock said.

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