[Theme music starts]

ASHLYNNE:

From Schwartz Media, I’m Ashlynne McGhee. This is 7am.

If you were a public service head honcho and you were picking a firm to run ethics training. Would one of the big four private consulting firms be your first pick?

They’ve rightly been under intense scrutiny in the media and in the senate which will today release a report with recommendations to clamp down on the sector.

The consulting giants had been making billions of dollars from government work but that’s coming to an end.

Today, The Saturday Paper’s Jason Koutsoukis, on what the crack down might entail and why the public service still thinks a consulting firm is best placed to run ethics training for its leaders.

It’s Wednesday June 12.

[Theme Music Ends]

ASHLYNNE:

Jason, I think we've just got to get into the heart of this story straight up. You've been looking at the consulting industry. Tell me about these pretty extraordinary contract that you found out about.

JASON:

So Ashlynne, at the Senate Estimates Committee hearing for the Department of Prime Minister and Cabinet last week, one of the key witnesses was the people from the Australian Public Service Commission.

Audio excerpt – Louise Pratt:

“I declare open this hearing of the Senate Finance and Public Administration Legislation Committee into the 2024-25 budget estimates.”

JASON:

And I was watching the proceedings of this committee. Barbara Pocock, the Greens senator, was doing the questioning. She's always someone that I'm interested in following because she's very forensic in her questions, and when she asked, you know, a fairly routine question of the Public Service Commission. Have you got any new contracts with any of the big four consultancies? And they said, yes.

They revealed that they had engaged KPMG Australia to run an ethics of leadership course for the Australian Public Service Academy.

Audio excerpt – Barbara Pocock:

“Does the Commission have any active contracts with any of the big four consulting firms at present?”

Audio excerpt – Speaker 1:

“So happy for me to take you once. Yeah. So, currently, we have one active contract with KPMG. They're delivering a leadership program, delivery support service, for the academy.”

JASON:

Which is quite extraordinary when you look at the kinds of things that KPMG has been accused of over the last four or five years, not just here in Australia, but around the world.

When I spoke to Barbara Pocock after the committee hearing, she told me just how shocked she was. Barbara Pocock said to me that this is the type of public service contract that big four firms dream about.

Audio excerpt – Barbara Pocock:

“Commissioner, why do you turn to an external consulting firm to teach leadership inside the IPS?”

Audio excerpt – Speaker 2:

“Oh, doctor. My apology. Oh, we'll come back.”

JASON:

And then the subject matter really floored me. The idea that you would get someone like KPMG to run a course on ethics of leadership left me feeling quite stunned. Why would she turn to KPMG to talk about ethics?

Audio excerpt – Barbara Pocock:

“Conflict of interest would be a topic they know a lot about. Yeah, tragically, why you would bring a firm like KPMG with its track record in this country and internationally to teach anything to do with the ethics of leadership is shocking proposition to me.”

JASON:

Judging from the way that the APSC people were responding to to Senator Pocock’s questions, I got the sense that they were a little bit embarrassed about what, about the contract that they'd signed, that they were embarrassed having to explain the detail. They just looked to me a little bit sheepish about it.

Audio excerpt – Barbara Pocock:

“Just curious about the KPMG contract contract. It is teaching to supply leadership training in the academy?”

Audio excerpt – Gordon Brewer:

“Yes, yes. And I can speak a little bit more about that. So, as you would know, many of these firms have many different functions.”

JASON:

The Australian Public Service Commissioner, Gordon de Brouwer, he stepped in to help explain the context around this contract. The minister representing Prime Minister and Cabinet in this instance, Katy Gallagher, the Minister for Finance. She jumped in pretty quickly to try and explain that well, there was there was an open tender process here surrounding the awarding of this contract, and I got the feeling that she was just a bit defensive as well, that they could say just how this actually looked in the cold, hard light of day.

Audio excerpt – Katy Gallagher:

“They've gone through a, you know, and a proper procurement process. So, I think I'm trying to just get some information, but when it was, when I was looking at it, there was an argument around why it was important to have an external facilitator.”

JASON:

In estimates week, there's so much going on that everyone just missed it. You know, what made this a creme de la creme contract. Wasn't that 1.3 million contract? It's the fact that it puts KPMG in front of 300 top public servants and how they can use that as a kind of farming opportunity. That's what Barbara Pocock told me. That this is a way for them to find out who's doing what and who's good, who's not, who's worth recruiting. Who can help them win this business? To create a brand new power map, if you like. Based on what they learned from running this course.

ASHLYNNE:

And they call this power mapping, don't they, when they look at the sort of most influential people in an organisation. Tell me about that.

JASON:

One of the things that got Barbara Pocock into the headlines last year was her questioning of the KPMG Australia chief executive, Andrew Yates.

Audio excerpt – The Chair:

“For the Hansard record, could you please state your full names in the capacity in which you appear today?”

Audio excerpt – Andrew Yates:

“Andrew Yates, I'm the CEO of KPMG Australia.”

JASON:

And she'd asked him whether KPMG, engaged in this practice known as power mapping, where big four consultancies draw maps of who's who in the, you know, different government departments, and they work out which public servants they can use to help win new business. And Andrew Yates strenuously denied, he said no.

Audio excerpt – Barbara Pocock:

“You responded to a question about power mapping, and you responded unequivocally that KPMG Australia does not engage in power mapping or any other similar practice. You recall that answer?”

Audio excerpt – Andrew Yates:

“I do, Senator.”

JASON:

And then she was able to hold up a, a power map, which had KPMG Australia its brand on the, on the slide.

Audio excerpt – Barbara Pocock:

“Mr. Yates, I now want to tender a document that's been provided under privilege. So I'll ask that it be circulated.”

JASON:

You know, this slide showed that KPMG had done very detailed sort of power mapping in the New South Wales public service.

Audio excerpt – Barbara Pocock:

“Can you see that? It displays in a high level of detail. Dozens of public servants, including their photos.”

Audio excerpt – Andrew Yates:

“Yes Senator.”

Audio excerpt – Barbara Pocock:

“Do you see the box called relationship strength, Mr. Yates?”

Audio excerpt – Andrew Yates:

“Yes, Senator.”

Audio excerpt – Barbara Pocock:

“There appears to describe in those six categories the strength of the relationship between particular public servants and the KPMG, partners and KPMG itself. Do you agree?”

Audio excerpt – Andrew Yates:

“Yes, Senator.”

JASON:

Andrew Yates was put in a very difficult situation, having his evidence directly contradicted in that way, and he immediately tried to, to backtrack and obfuscate and said that no, this looked like a power map, but it wasn't a power method.

Audio excerpt – Barbara Pocock:

“Similar given obviously in this document, you need to give me a few more hours just to respond to that more broadly, because we could get caught up here in a definition about what constituted, constitutes of harassment.”

JASON:

He used all kinds of other euphemisms to try and sort of get himself out of it. But, it wasn't very convincing. And I think he left that committee hearing feeling very embarrassed about his testimony.

ASHLYNNE:

So Jason, this type of incident isn't an isolated incident for KPMG, but it's also not an isolated incident for the consulting industry as a whole. It's been in the spotlight heaps over the past couple of years. Talk me through some of the greatest hits for the big four.

JASON:

The incident that got everyone talking about the big four consultancies and the way they engage with the Australian Public Service in Canberra, was the revelation that the Tax Practitioners Board had taken action against a senior partner at P.W.C. Australia back in 2016. And that person used the inside knowledge to help the Treasury write these new tax laws. Then he'd gone back to P.W.C. and said, this is what the Australian government is going to do, and P.W.C used that information, and used it to advise existing clients on this new law was coming into force and how to avoid that new law.

And then they use the inside information to attract new clients and help them avoid paying this new law that would be coming into force. So this was an incredible breach of trust that P.W.C. had engaged in. Not only had they done that, but they then tried to cover it up. That information was then leaked to the Australian Financial Review. And some of the members of the Australian Senate started asking questions about it. And then once they understood the full scope of what had happened in inside P.W.C, they launched this, this inquiry into the relationship between consultancies and the Australian government.

ASHLYNNE:

After the break - will the government wield a big stick, or a wilted lettuce leaf when it comes to a crack down on the consulting giants.

[Advertisement]

ASHLYNNE:

Jason. Today, a Senate committee will table its long awaited final report into consulting services provided to the federal government. We've already had a bit of a taster in the interim report that was released last year, but will today's recommendations signal any kind of major crackdown on the consulting industry?

JASON:

I think the Senate inquiry is going to recommend new ways to regulate the consulting industry. One option is to say that big four firms are not allowed to do both auditing and consulting. That the conflicts of interest within firms that do both of those things, auditing and consulting, are impossible to resolve. They're going to have to, to split because they can't manage the potential conflicts of interest. And we've, we've seen that happen time and again with consulting firms.

ASHLYNNE:

The government says it's already taken steps to curb the influence of consulting firms in politics. Talk me through what it's done. And I guess, is it enough?

JASON:

Perhaps the biggest revelation of the last 12 months have been the extent to which the Australian Public Service has been hollowed out. So people leaving the public service and going to work for the big four and taking all their expertise with them and this government back in May 22, when Anthony Albanese came into power, one of the first things that they committed to doing was rebuilding the public service.

And I think the committee report that we're going to see released later today is going to suggest ways in which the Commonwealth can strengthen the public service to keep the focus on rebuilding the expertise that the public service has and holding onto the talent that it recruits.

In the last budget, we saw the Albanese government commit to hiring an extra 10,000 public servants. This adds to the thousands of extra public servants that were added in the first year of government.

Another thing the government announced that it would do in December was set up its own in-house, consulting service. It's got a name, Australian Government Consulting. It's got about 17 staff now. And they've committed to hiring up to 40 staff by the end of the next financial year. And these are 40 people who can offer the same sorts of consulting services that public service agencies are now currently turning to the big four to provide. And this is projected to save taxpayers about $3 billion in the first term of government. So by the time we go to the next election, so I think that's quite a significant change. And so hopefully he will say the Commonwealth relying much less on on the big four for key advice functions that the Australian Public Service used to provide routinely.

ASHLYNNE:

So, Jason, given how much consulting has changed the face of the public service in the way that the public service works, can you imagine a world in which the government or governments wouldn't rely on consultants?

JASON:

I think one of the first things that Tony Abbott tried to do when he became prime minister back in 2013, he said, well, we're going to cut costs. One of the biggest costs is Australian Public Service. So we're going to just spend less on public service advice. But of course, once they started to make those cuts, the government started to realise that it wasn't getting the kind of advice it needs to function. And so then they started to outsource, instead of hiring more public servants and adding to that kind of annual public service wages bill, they decided it would be much easier to hide the amount of money that it was spending on advice by outsourcing it.

And having outsourced some of the, the key functions of, of the public service has weakened the quality of government that, that we have become used to, since federation.

I think we need to go back to the model that served us so well, for the first 120 years. And that is, a strong independent public service. And, it's not just the quality of government that we're getting. It's the value of our taxpayer dollars.

We don't want to be using taxpayer dollars to make a small group of consultants much richer. We want to see our taxpayer dollars are being used to provide very good advice and very good advice that's truly independent and that's truly advice that is in our national interests, not the interests of a consultancy like KPMG or Deloitte.

ASHLYNNE:

Jason, thanks so much for your time.

JASON:

Thanks, Ashlynne. It's always great talking with you.

[Advertisement]

[Theme Music Starts]

ASHLYNNE:

Also in the news today…

Federal opposition leader Peter Dutton says he would be committed to reaching net-zero by 2050, as required by the Paris agreement, despite announcing he campaign to overturn Labor’s 2030 target if elected.

At a press conference yesterday, Dutton said that progress on climate didn’t have to be, quote ‘linear’, and therefore claimed reducing emissions by 43% by 2030 wasn’t necessary to reach the 2050 goal.

And…

The long-promised overhaul of the reserve bank board’s structure may not be complete in time for the deadline of July 1.

The board was meant to be split in two: one board for governance and one board of experts that set the interest rate – as proposed by a review of the bank last year but reports are negotiations between the government and the opposition have broken down and legislation is unlikely to pass in time for the deadline.

That’s all from our 7am. My name is Ashlynne McGhee. Thanks for your company and I’ll see you again tomorrow morning.

[Theme music ends]