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ANGE:

From Schwartz Media. I’m Ange McCormack. This is 7am.

It started with PwC, but now accusations are being levelled at the other big consultancy firms in Australia. Over the last 10 years, more and more government decision-making has been outsourced to multi-billion dollar firms in lucrative contracts. Now, the firms’ relationships with government - and their level of influence - are being questioned by Senators in Canberra.

Today, Chief Political Correspondent for The Saturday Paper, Karen Middleton on the big four consultancy firms – and why one contract between Deloitte and the Home Affairs department had to be axed.

It’s Monday, July 24.

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Archival Tape – Senate speaker:

“I declare open this hearing of the Senate Finance and Public Administration References Committee into the management and assurance of integrity by consulting services.”

ANGE:

Karen, this week the big consultancy firms were hauled to Canberra to give evidence to a Senate inquiry looking into their influence, their role in government and how they operate when handling government contracts. Why now and who is this inquiry looking at?

KAREN:

Well, the inquiry's been underway for for a few months now and it came about Ange because of the concerns over the actions of PwC, one of what we call the big four consultancy companies, it has acknowledged that back in 2015, one of its partners misused some government information that he had access to and used that information about upcoming changes to tax law that was cracking down on multinational tax avoidance to pitch to clients, existing clients and would-be clients ways around those laws. This has given rise to concern about these consultancies and their influence on government, particularly the ones we call the Big Four, PwC, Deloitte, EY (Ernst and Young) and KPMG. The Big four are partnerships and some of the others are. Companies have a great deal of influence in government. I think the Centre for Public Integrity has had a look at this. They've suggested that a decade ago these big four companies were getting contracts worth about $280 million and now a decade later it's up to I think, $1.4 billion last financial year. So they are taking a lot of money from the public purse, offering a range of different services to government. And there's concern that they have too much influence. A number of senators in particular, Greens Senator Barbara Pocock, Labour Senator Deb O'Neill, have been asking a lot of questions about that level of influence, what they're getting for the money and whether it's all appropriate.

ANGE:

And so Karen, key executives from Deloitte and EY had to face those questions from Senators this week, and it's this rare opportunity for the public to actually see these firms under public examination. So what were we able to learn about how they work and whether some of these concerns might be justified?

KAREN:

Well, it's interesting. We have heard through this inquiry from government departments and some other institutions, but this was the first time we heard directly from any of the big four themselves.

Archival Tape – Senate speaker:

“Just for Hansard purposes, give us your full names and the capacities in which you appear.”

Archival Tape – Sneza Pelusi:

“Sneza Pelusi, and I'm the chief risk officer of Deloitte.”

Archival Tape – Tom Imbesi:

“Thank you, Tom Imbesi. I'm the chairman for Deloitte Australia.”

Archival Tape – Adam Powick:

“I’m Adan Powick and I am the CEO of Deloitte here in Australia.”

KAREN:

They were very reluctant to be talking about how much people get paid, how much people earn at the top levels of these consultancies. They don't like to divulge that. They say it's anti-competitive, that it would be giving information to their competitors.

Archival Tape – Tom Imbesi:

“There was a level of detail there that we felt on balance may be commercially sensitive, and that's why we elected not to provide.”

Archival Tape – Senate Speaker:

"Providing your salary a number. The number of people in million dollar bands is something you're not comfortable with doing to the Australian public. Given that you last year took $712 million of public money…"

KAREN:

When he was pressed Oceania chief executive for EY, David LaRocca eventually said, Well, look, my remuneration for the past year was about $2.8 million, but he was still very reluctant to give much more information than that about the rest of the firm. Chief executive from Deloitte, Adam Powick, eventually said that Deloitte Partners averaged an annual base salary at about between 500,000 and $600,000. The base salary.

Archival Tape – Adam Powick:

“We can potentially discuss at some point just an average partner earnings. You know, and for us at Deloitte, it's between 500 and $600,000. Gives you a sense across our partnership cohort.”

KAREN:

Labour Senator Deb O'Neill pointed out that it was in the public domain via media reports that Adam Powick earned about three and a half million dollars a year. And Deb O'Neill grilled him about his worth.

Archival Tape – Deb O’Neill:

“You'll here as the head of one of the major companies vital to the proper functioning of the markets. And therefore, for every single Australian superannuation, you've got a really important role there. So let's begin there. Mr Powick are you really worth seven times the salary of the Australian Prime Minister?”

Archival Tape – Adam Powick:

“No.”

KAREN:

He was acknowledging, I guess, that there's a significant discrepancy between the earnings in these private partnerships and the earnings in the public sector. But yeah, across the board very reluctant to give too much information away.

ANGE:

And so these very large salaries might not be a good book for firms who are making money essentially off the Commonwealth. But the bigger issue here is a conflict of interest, isn't there, where the firms might be doing anything like what PwC was, quote, doing and using sensitive information inappropriately. So what do we learn about that?

KAREN:

Well, they're all very sensitive about suggestions that they misuse government information because these government contracts are so lucrative for them, and they're all insisting that they don't do that. Now, towards the end of the week, we saw in the Nine newspapers reported that a former partner at Deloitte had used information from Defence that was allegedly acquired while he was working on defence contracts and that he was alleged to have taken that information into a new business venture of his own to try and get more clients from Defence. Now Deloitte are saying that they have alerted Defence to this alleged misuse. They are concerned that the information was accessed inappropriately and they have demanded of the former partner that he return any information that was information gained during that employment with Deloitte. So they are saying they are taking steps and they're very concerned about that. Separately from that, I've also been looking into another conflict of interest that involved Deloitte. The Auditor General was looking at a big contract that the Department of Home Affairs had put out to tender in 2020. It eventually ended up with a contract worth about $1.5 million to be the commercial adviser to that whole tender process. That contract was terminated in 2021 over what the Auditor General found was an undisclosed conflict of interest.

ANGE:

Hmm. That's interesting. And so what have you been able to learn about this conflict involving Deloitte and how did it come about?

KAREN:

Well, the Auditor-General had a look at this whole process and what it revealed was a Home Affairs official contacted someone from Deloitte and said, We want to catch up just to talk to you about the possibility of being a commercial adviser with this upcoming contract. They had the catch up. The Deloitte person then passed this on to two information and communications technology specialists within Deloitte because they were the people that might be best placed to assist. And the Home Affairs Department decided to engage Deloitte as commercial advisers. During the course of that, these two specialists indicated to Home Affairs that Deloitte might also be interested in being a bidder on the contract. Now that raised some concerns in home affairs. They went away and got some probity advice on that and came back and said, No, you can't do that. You've had early access to inside information and you've had some paperwork about what's been involved. You mustn't be a bidder and you mustn't be involved with a bidder. Fast forward a few months. The tender process is underway. One of the preferred tenders comes back to home affairs and says actually we need to let you know that one of the Deloitte people has been advising us and we see that they are the commercial advisers. Home Affairs went hang on. Had a look at this and said, no, that's not appropriate and the contract with Deloitte was then terminated. So Deloitte is denying very strongly that it misused government information in any way in this sense. But this whole thing does give rise again to the issue about whether there are cosy relationships between these big companies and people in government and what some of the senators are calling a revolving door of people in and out of both, that mean there are networks and there's early access to information, access to influential people. And what is the impact of this on the way the government runs?

ANGE:

We’ll be back after this.

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ANGE:

Karen, we've been talking about these revelations that have come just as the big four consultancies are coming under scrutiny. Now, the Senate inquiry also heard from the former ACCC boss, Allan Fels, about how the government has ended up so dependent on consultancy firms in the first place. What did he have to say?

KAREN:

Allan Fels has had a long history with this issue. He's long said that he's been concerned about conflict of interest involving these big firms and their access to government. And he very firmly said that he thinks that these big four firms should be more regulated and effectively broken up, so there's greater separation between the arm that deals with government through audit and other activities for government and the arm that does things for private companies.

Archival Tape – Alan Fels:

“There is a severe conflict of interest of financial institutions and the interests of customers.”

KAREN:

Because that's where the conflict comes in. If a big consultancy firm has got a client in the private sector and a client in government, sometimes those two things can work against each other and whose interests do you serve. So Alan Fels is saying they really need to be broken up.

Archival Tape – Alan Fels:

“It was not resolved by self-regulation and government oversight. And that it could only really be solved by a break up.”

KAREN:

Obviously, those big consultancy firms are resisting that they don't think they should. With the example of PwC, though, the emergence of this whole scandal around the misuse of government information in that organisation has led to them hiving off their government wing and they've sold it off for a dollar to a private company, private equity company called Allegro Funds. So they have taken steps to separate those two things operating under the one corporate roof. So, you know, there's an argument from Allan Fels that we just need greater scrutiny and that actually, the government needs to step in and regulate this better so that these organisations are subject to more rules and greater scrutiny than they are at the moment.

ANGE:

Right. So it wasn't obviously always this way. The amount of government contracts going to these firms has increased massively. Why are we even in this position that we are in now today?

KAREN:

Yes, well, Ange, over the years there's been pressure on government to save money that is sometimes manifested in big cuts to the public service that looks good on the books and the bottom line is improved. But in the end, it also removes a lot of the skill set in the public sector. So some of the public sectors skills have been a bit gutted and they then have to reach to the private sector for some of the skills that they are missing. And there's another layer to this as well. Increasingly, governments have been frustrated to a point with having to disclose what goes on inside government via the Freedom of Information Act. And the use of private consultants also helps them sometimes get around that a bit. So there are a number of reasons why we've seen the increased use of private organisations. And in the end, though, it hasn't end up saving money really, because when you've removed the people with the skills in the public service and then had to buy the skills back, you're very often paying a lot more for them than you would be if you just had the people employed sitting at a desk in the public service in the first place. So there's a question about whether it's been an effective process. Prime Minister Anthony Albanese was asked about this issue this week on radio and he revealed that he'd had all the departmental secretaries round for dinner at the Lodge and that the subject had very much come up.

Archival Tape – Anthony Albanese:

“We need to be able to have a capacity to ask the public service for advice and to get it direct from the public service. It's been a culture develop where any question gets referred off to one of these consultants and these guys make billions of dollars and we need to do better.”

ANGE:

Karen All of this paints a pretty unflattering picture of the big four consultancy firms, and it feels like we're just scratching the surface of what could be uncovered about how they operate. There's already calls for a royal commission. Is this problem big enough for that, do you think?

KAREN:

Well, that's the question. Certainly Senators Deb O'Neill and Barbara Pocock are pushing very hard for greater scrutiny. There are questions about whether there should be a royal commission. Some people say, look, we've been having a royal commission at the drop of a hat on everything, and maybe it's not the most effective way to go. Certainly in the first instance, these senators believe that there is more to look at, that they can do more through the parliamentary process with Senate inquiries. And in fact, the inquiry is chaired by Liberal Senator Richard Colbeck and he is also pushing hard for greater scrutiny. So it is a kind of multi-party effort here to try and improve the level of transparency and accountability in the sector. Whether it ends up in the lap of some form of greater judicial inquiry isn't clear. But what is clear is that there's more digging to do yet in exactly how things operate and whether they would meet public expectations in terms of the expenditure of public money.

ANGE:

Karen, thanks so much for speaking with me today.

KAREN:

Thanks, Ange.

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ANGE:

Also in the news today…

Around 30,000 people were evacuated from villages on the Greek island of Rhodes over the weekend, after wildfires that had been raging for over a week moved towards homes and hotels. The wildfires come as the Northern hemisphere is in the midst of a historic heatwave – with 2023 featuring the hottest average global temperatures in modern history.

And…

A United States warship was commissioned in Sydney on Saturday. It’s the first time in history the US Navy has put a new ship into active service at a foreign port – a sign of the growing defence partnership between the US and Australia. The ship, called the USS Canberra, is named after the historic Australian ship, which was sunk during WWII.

I’m Ange McCormack, this is 7am. We’ll be back tomorrow.

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