When PricewaterhouseCoopers’ Australian business issued an expansive apology over the tax leaks scandal, it may have hoped for an opportunity to start rebuilding its reputation.
Instead, it endured one of the most difficult weeks of the self-inflicted crisis, when not only the structure of its own business was scrutinised, but that of its global operations and wider consulting industry.
PwC Australia is now subject to multiple investigations, including a criminal probe, after its now former international tax chief used confidential information and documents obtained through his work for the government for the firm’s commercial gain.
The former PwC adviser Peter Collins fed intelligence on government plans to toughen multinational tax laws to colleagues to win overseas business in actions that may have also robbed Australia of tax revenue.
Inquiries will almost certainly extend into the UK, where PwC is headquartered, and the US, after the information was shared with affiliates. There is also now a push to test the value of consultancy contracts with government agencies, and whether the advice is inherently conflicted.
James Guthrie, an emeritus accounting professor at Macquarie University, in Sydney, Australia, who has become an influential voice for reform during the scandal, says the work of consulting organisations was rife with conflicts of interest.
“It’s no longer just about PwC; there’s plenty of examples of other conflicts and this is the global business model the industry is engaged in,” Guthrie says.
“They don’t come in just to provide internal advice, they come in to provide advice on government policy. They tell you to privatise or to put in place commercial models, and then you need them to enact those changes.”
The strategy is colloquially known as “land and expand” whereby an initial contract leads to ongoing lucrative work.
The use of consulting firms in the public service is now widespread, with PwC Australia holding more than A$500m in contracts with the federal government last year alone.
TimelineShow
That figure does not take into account numerous contracts with state governments and agencies, and also work done by its major accounting competitors – Deloitte, KPMG and Ernst & Young.
Internationally, revenue for global management consultants is forecast to total US$860.3bn in 2023, according to the research house IBISWorld. Most of the major consultancies are based in the UK or US.
Regulators around the world, in particular in the UK, have raised concerns over the ability of firms to properly audit accounts, while also offering lucrative consulting contracts to those same clients.
In the US, the Securities and Exchange Commission last year started an investigation into the large accounting firms to test whether their consulting services undermine their ability to audit a public company’s financial books.
In 2021, KPMG Australia was fined over widespread cheating on online tests designed, in part, to ensure partners and staff act with integrity.
Representative body Chartered Accountants Australia & New Zealand says it is conducting its own investigation into the PwC matter. It declined to comment on any conflicts of interest in the broader industry and potential need for reform.
On 29 May, PwC Australia published an open apology on behalf of the acting chief executive, Kristin Stubbins, who took over after the resignation of Tom Seymour.
The apology acknowledged that the culture in its tax arm allowed inappropriate behaviour to occur.
On the same day, PwC announced it had directed nine partners to go on leave pending the outcome of an investigation, but did not reveal their names.
The apology did little to quell public anger, with the Labor senator Deborah O’Neill warning anything short of naming all PwC partners involved in the tax issue represented a “continued obfuscation and cover-up”.
While the tax scandal was initially focused on the misuse of confidential government information, the entire industry is now under scrutiny, reigniting a debate about separating auditing from consulting and advice.
Two days after the PwC apology, the government of Australia’s most populous state, New South Wales, established an inquiry into the use of consultants that is more sweeping than prior examinations.
The terms of reference include an appraisal of the transparency of work undertaken by consultants along with measures taken to prevent conflicts of interest, breaches of contract or any other unethical behaviour.
“This one’s about consultant business models and that opens up a space for change,” Guthrie says.
The tax scandal also highlights how dependent government departments are on external consultants for matters that would have previously been handled internally.
An audit found that the previous Coalition government in Australia spent $20.8bn outsourcing more than a third of public service operations.
Michael Tull, assistant national secretary at the Community and Public Sector Union, says while there is a place for seeking specialist advice, governments are relying on consultants for day-to-day operations.
He says this is evident when government departments hire consultants to oversee assessments of grants and public contracts.
“You end up with contractors awarding contracts to contractors,” Tull says.
Such a scenario shows a need to require consultants to disclose their client lists, which does not currently happen.
Tull says the PwC scandal proves there is a need for a better regulatory regime that also allows governments to cancel existing contracts when a firm acts unethically.
“The first thing we need is a regulatory regime that actually recognises the fundamental risk that profit-driven companies are going to drive for profit,” he says.