Australian Greens Senators' additional comments

1.1This is an important report which responds to a public scandal in PwC and the consulting industry more broadly, including all of the Big Four – PwC, KPMG, EY, and Deloitte. This scandal has shocked Australians – and many beyond our shores. Meaningful reform cannot wait. The evidence is in. Reprehensible behaviour has thrived in gaps in our regulatory framework and bent the cultures of some of our largest private entities, much of whose income and profit comes from the public purse.

1.2This evidence is of international significance: it reveals global challenges that beset effective governance, behaviour and structures in some of the world’s large entities - that too often put their own interests before those of the public.

1.3Australians want to see action that prevents any repeat into the future. They want their government to ensure that these very large partnerships no longer operate beyond regulatory scrutiny in opaque, poorly governed, profitable secrecy. We need comprehensive legislative, cultural and structural change to fix these organisational failures. There is a strong case for change. Shared outrage is not enough: it is essential to see action.

1.4The recommendations of this Inquiry are a vital step towards change and they deserve strong support. The Australian Greens offer five supplementary recommendations that also deserve action.

1.5This Inquiry builds upon the work of the Senate Finance and Public Administration References Committee’s Inquiry into the Management and Assurance of Integrity by Consulting Services. The Australian Greens made lengthy additional comments in the final report of that inquiry, titled ‘A Very Public Swindle: Ending the Cost, Conflict and Regulatory Failure in Big Consulting’.[1]Many are reflected in this report and in our additional comments below.

1.6On behalf of the Australian Greens, I want to thank the committee for their work. I would also like to add a personal thanks to all those who supplied evidence to the Inquiry. This thanks extends to the many whistleblowers and journalists who diligently, and sometimes at great risk, informed our work. Ithank my parliamentary colleagues for their cross-party collaboration and the committee secretariat for their work.

Partnership reform

1.7As this report shows, partnerships need serious structural and regulatory overhaul. All four big accounting firms are partnerships not corporations, and thus lack the accountability, transparency, and obligations of other large entities in our economy.

1.8One of the only Commonwealth powers of partnership regulation is setting limits on size through the Corporations Act 2001. The Corporations Act 2001 allows accounting firms to have up to 1,000 partners, a much higher cap than medical practitioners (50) and pharmaceutical chemists or vets (100). The majority report recommends a reduction in accounting partnerships to 400, reflecting the evidence that effective governance in a partnership with up to 1,000 partners is not possible. Mr Adam Powick, CEO of Deloitte has acknowledged that once a partnership gets above 100 equity partners, it becomes too complex to manage.[2]

1.9PwC is a case in point, having around 800 partners at the time the scandal broke. The size and complexity of its structure enabled Mr Peter Collins to use confidential government information for the benefit of PwC's private clients, undetected or concealed by other partners over a long period. While size of firm is not the sole determinant of organisational culture, it is clear that an opaque partnership structure, unclear lines of accountability, and partnership hierarchy made it difficult to challenge the actions and decisions of those at the top.[3]The partnership structure made it harder to uncover, investigate, enact penalties, and hold the firm broadly to account.[4]

1.10The committee’s recommendation to cap partnership size at 400 partners is a good starting point, but there is considerable evidence in favour of it being lower.As noted in the majority report, both Brent Fisse Lawyers and Professor Andy Schmulow suggested that the number of partners in accounting firms be limited to 100.[5]

Regulation

1.12The majority report recommends operational separation of the provision of audit and non-audit services to any single client entity (and their associated entities both in Australia and internationally).

1.13This recommendation is an important step. However, other approaches were suggested to the inquiry including full structural separation of audit from non-audit work to prevent built-in conflicts of interest by requiring those firms doing audit work to be precluded from doing non-audit work entirely. The majority report includes explanation of the case for structural separation.

1.14Professor Allan Fels argued for this approach to separation of audit from non-audit services within the Big Four firms, saying that it ‘is far simpler and more effective than alternative methods of dealing with the conflicts of interest that inevitably arise when auditing and non-auditing work are offered by the same firm’.[6]The CPSU also supports structural separation.[7]

1.15Audit is a legal requirement of public companies and poor audit quality can undermine economic stability.

1.16While the majority report recommends operational separation, structural separation is an alternative, firmer way to ensure the integrity of the audit system and guarantee that audits are not compromised by non-audit services, creating conflicts of interest.

A Strong Independent Regulator for the Consulting Industry

1.18Bad behaviour thrives in regulatory gaps. A key issue is that Australia's current regulation of consulting services is weak and inadequate. It lacks meaningful enforceability and is too opaque.

1.19There is a pressing need for governments to reset regulation of professional services, in particular consulting services. We cannot rely solely on voluntary codes or self-regulatory professional bodies. While the majority report recommends the establishment of a registration body and a code for consultants, it does not make a recommendation to establish an independent regulator of the consulting profession with teeth.

1.20We believe the evidence about consultant conduct[8] necessitates the need for a single, independent regulator for the consulting industry as we recommended (Recommendation 16) in our additional comments to the Senate Finance and Public Administration References Committee’s Inquiry into the Management and Assurance of Integrity by Consulting Services.[9]

1.21The Australian Greens recommend that the Australian Government, beyond establishing a register and code for consultants as recommended in the majority report, establish an Independent Regulator for the consulting industry, with an enforceable professional code of conduct, national standards, investigation powers and penalties for breaches.

End Donations to Political Parties

1.22Donations to political parties should not be possible from those who tender for, or receive, government contracts. Money must not buy, or be perceived to buy, political access and influence. This applies to direct, indirect, in-kind and pro-bono donations.

1.23While not implying any wrongdoing by the members of this committee, the corrosive impact of political donations in relation to government consulting must stop.

1.24Over the past decade, the Big Four consulting firms have donated over $6.6 million to the ALP and Coalition and received a staggering $8.5 billion in government contracts, over the same period.[10]It is no surprise that the Australian Government became amongst the highest spenders on consultants in the world.

1.25Australians want to see us break the link between political donations and consulting to government. There is widespread support for banning these donations. Research by the Australia Institute shows that three in four Australians (74 per cent) support banning political donations from entities that receive funding from government contracts, including 80 per cent of Coalition voters and 70 per cent of Labor voters.[11]

1.26A ban on political donations is key to restoring public confidence in government and to ensure that decisions about allocating public resources are guided by public interest, rather than the interests of donors.

1.27The Australian Greens urge the government to immediately legislate, at the very least, a ban on political donations from those who tender or receive government contracts.

1.28The Australian Greens recommend that any entities tendering or contracting to the Australian Government be banned from making political donations (direct, indirect, in-kind, pro-bono or otherwise) in the 12 months before applying for contracts, while an application is being considered, or 12 months after contract obligations have been completed.

Ending the Concealment of Harmful Cultures and Behaviours

1.29The inquiry found considerable evidence within the Big Four firms of poor organisational cultures that put staff well-being at risk or caused clear harm to individuals. The findings of both the Broderick report, and the Switkowski reports provided detailed accounts of failed internal cultures.[12]Further, whistle blowers provided accounts (sometimes in direct communication with Senators) about the use of devices such as non-disclosure agreements to conceal unacceptable behaviours or protect bad actors from public consequences.

1.30Devices like non-disclosure agreements should not be used to conceal poor behaviour. Further they prevent any deterrence affect arising from appropriate public consequences. In this light we recommend that the government review of the use and consequences of non-disclosure agreements.

1.31The Australian Greens recommend that the government review the use of non-disclosure agreements in large employing entities to ensure that their use does not conceal or protect harmful behaviours by individuals and/or harmful internal cultures including in relation to sexual harassment, bullying, and exploitative work cultures that create unsafe work environments.

Senator Barbara Pocock

Member

Greens Senator for South Australia

Footnotes

[1]Senate Finance and Public Administration References Committee, Inquiry into management and assurance of integrity by consulting services, Australian Greens Additional Comments: A Very Public Swindle: Ending the Cost, Conflict and Regulatory Failure in Big Consulting and Rebuilding the Public Sector, June 2024.

[2]Mr Adam Powick, Chief Executive Officer, Deloitte, Senate Finance and Public Administration References Committee Hansard, 23 February 2024, p. 52.

[3]See, for example, Professor Brendan Lyon, Senate F&PA References Committee, Management and assurance of integrity by consulting services, Submission 45.

[4]Senate Finance and Public Administration References Committee, Inquiry into management and assurance of integrity by consulting services, Australian Greens Additional Comments: A Very Public Swindle: Ending the Cost, Conflict and Regulatory Failure in Big Consulting and Rebuilding the Public Sector, June 2024, p. 133.

[5]Brent Fisse Lawyers, Submission 11, p. 2; Professor Andy Schmulow, Submission 68, p. 2.

[6]Professor Allan Fels AO, Submission 52, p. 1.

[7]Community and Public Sector Union, Submission 48.

[8]Accounting Professional and Ethical Standards Board, Submission 20, pp 3–4; Dr Andy Schmulow, Submission 68, p. 2; BDO Group Holdings Limited, Submission 38, p. 5; Professor Allan Fels, Private Capacity, Senate Finance and Public Administration References Committee Hansard, 17 July 2023, p. 7.

[9]Senate Finance and Public Administration References Committee, Inquiry into management and assurance of integrity by consulting services, Australian Greens Additional Comments: A Very Public Swindle: Ending the Cost, Conflict and Regulatory Failure in Big Consulting and Rebuilding the Public Sector, June 2024.

[10]Advice provided by the Parliamentary Library.

[11]The Australia Institute, Voters Back Donations Ban for Government Contractors, Media Release, 8August 2023 (accessed 28October 2024).

[12]Elizabeth Broderick & Co,independent review into workplace culture at EY, 27 July 2023; Dr Ziggy Switkowski, Review of Governance, Culture and Accountability at PwC Australia, August 2023.