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As we watch the Albanese government and the Senate crossbench getting to the bottom of what’s become “The PwC Scandal”, it’s important to join the dots. It’s not just a question of who did what and when, and how they’ll be held accountable for their actions. It’s more a question of how did a formerly highly respected firm of chartered accountants come to behave in such an unethical and possibly illegal way. And how did the federal government allow itself to get into such a compromised position?
Illustration: Simon Letch. Credit:
It’s an issue that interests me on many levels. There’s a caste system among accountants, and the ones who call themselves “chartered” – acting under a charter from the King – regard themselves as the brahmins.
Before I became a journalist almost 50 years ago, I worked for one of the “big eight” firms of chartered accountants – Australian partnerships that had affiliated with one of the eight big, American-based international firms. (I’m still a fellow of the chartered accountants’ institute.)
The big eight coalesced into today’s big four, with their snappy, slimmed-down names: PwC, KPMG, Deloitte and EY. Historically, the main thing they did was audit publicly listed companies, certifying that their published accounts were “true and fair”. They also gave tax advice and did rich people’s tax returns.
But there’s not much money in auditing, so each of the big four has branched out into providing consulting services to big companies – in a big way. The consultants – few of whom would be accountants – have become the fat tail wagging the chartered dog.
There is much potential conflict of interest between these three activities, and it’s possible this scandal will hasten the separation of the auditors from the consultants – something that should have happened ages ago.
That’s enough about boring accountants, except to say that, if you wonder why PwC has been so slow to send the offending heavies packing, it’s because these businesses aren’t companies with the usual command structure, they’re unwieldy partnerships. “Why should I vote to get rid of one of my partners, when I might be next?” In Australia, PwC has about 900 partners and 8000 staff.
These days, much of the big four’s income is from consulting to federal and state governments. In 2021-22, the feds paid $21 billion for “external labour” – consultants, but also contractors and labour-hire companies. Senator Barbara Pocock, of the Greens, says this is equivalent to 54,000 full-time workers, and compares with 144,000 directly employed public servants.
“Policy development and implementation are now routinely taken from the public service and turned over to private consultants,” says Geoffrey Watson, SC.Credit: Alex Ellinghausen
Barrister Geoffrey Watson has asked “why is Australia outsourcing so much of its governing to private enterprise? Policy development and implementation are now routinely taken from the public service and turned over to private consultants.”
To leftie academics, the answer is that it’s part of the rise of “neoliberalism”. To me, its part of the quixotic quest for smaller government and lower taxes, via deregulation and privatisation in all its forms: not just the sale of government-owned businesses, but the provision of publicly funded services such as job search, childcare, aged care and disability care by church and community groups and profit-making businesses.
Plus, in the present case, getting rid of public servants in favour of advice from private consulting firms. At the beginning, the big four had no great understanding of public policy. But they set up offices in Canberra and hired many of the policy experts being let go by government. These people got paid a lot more, and their services sold back to the government at an even higher rate.
What’s not to like? It’s only taxpayers’ money.
Remember that PwC’s questionable behaviour occurred long before the arrival of the Albanese government. It was the Coalition government, particularly under Scott Morrison, that distrusted and disliked public servants.
One of the attractions of paying outside consultants for advice is that, to ensure repeat business, they tend to tell you want they think you want to hear. Whether in auditing or consulting, the notion that anyone can buy genuinely independent advice is a delusion.
According to Andrew Podger, a former senior public servant, the government’s imposition of ceilings on staff numbers and wage bills “led to the use of external labour even when departments knew it didn’t represent value for money”.
Consultants will always give their business’s profits priority over the public interest. When you join the dots, they go from the PwC affair to the problems we encountered years ago with privately owned childcare, the royal commission into aged care, and all the present problems with the cost of the National Disability Insurance Scheme.
The great experiment of finding out whether it’s better for public services to be delivered by the private sector than the tea-drinking public servants has been a resounding failure. And the suggestion that, by dishonouring its confidentiality agreements, PwC may have broken the law, provides a link to the royal commission on banking misconduct, and even to the epidemic of wage theft.
Somehow or other, the “smaller government” policies of recent decades have left many businesses believing they are no longer required to obey the law.
Ross Gittins unpacks the economy in an exclusive subscriber-only newsletter every Tuesday evening. Sign up to receive it here.
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