Australian senate report calls for greater oversight of consultants after PwC scandal

A parliamentary report in Australia in the wake of the PwC tax leak scandal has called for far greater oversight of the powerful consulting industry and transparency over government contracts. 

The report, published by a senate committee after an intense investigation over the past year, argued that large partnerships such as PwC, Deloitte, KPMG and EY operate in a “grey area of regulation”. 

One of the main recommendations of the report published on Wednesday was for the Australian Law Reform Commission to review how to regulate firms structured as large partnerships. That could open the door to the Big Four consultants being regulated more like corporations. 

Other recommendations include a code of conduct for consultants to align them with public servants, a central register for breaches of conflict of interest and greater scrutiny of contracts by parliament. 

Australian politicians have cracked down on the country’s powerful consultancy sector — which had grown to become one of the most profitable in the world for the Big Four — in the wake of the revelations that a PwC tax partner used confidential information gleaned from his advisory work for the Australian government to feed back into the consultant’s tax planning services for global technology companies. 

The scandal, and subsequent hearings, have spread beyond PwC and led to a substantial reduction in spending on outside consultants by the Australian government and a debate over the use of consultants for government work. Firms including PwC and EY have introduced new governance systems while some governments, including the UK and US, have started to review rules around how best to regulate services such as auditing in the wake of other scandals. 

“The PwC tax leaks scandal, and the wave of ethical failures subsequently exposed at other large consulting and audit firms, has struck at the very core of Australians’ faith in the integrity of corporate Australia, and of the way in which such entities engage with government,” said two Labor senators that sat on the senate committee, in a joint statement. 

The recommendations, however, stopped short of more drastic recommendations such as a prolonged ban on PwC winning government work, forcing firms to split their audit and consulting functions or mandating a reduction in government spending on consultants.

Barbara Pocock, an Australian Greens senator who has been one of the most strident interrogators of the heads of EY, KPMG and PwC’s Australian firms during the hearings, derided the recommendations as far too modest and called for accounting partnerships to be limited to only 100 partners among other measures. She described the consulting industry as a “very public swindle”.

Richard Colbeck, the Tasmanian Liberal senator, who chaired the committee, told the Financial Times it was important that the recommendations were sensible and could be quickly implemented.

Colbeck, a member of a committee that scrutinises all public works contracts over A$15mn ($10mn), said billions of dollars worth of consulting and services contracts should be treated the same. “There is no oversight for those contracts,” he said, of the need for new transparency rules.

He also noted that the Treasury had opened a consultation, following the senate hearings, into potential changes to the ways consultants were governed. He said that the senate recommendation went further in urging a formal review by a legal body, but cautioned that any crackdown on the partnership model had to be careful not to bleed across to legal firms. “It’s a bigger can of worms,” he said of the potential changes.

The senators reiterated a call for PwC to reveal the findings of an internal investigation by law firm Linklaters into how the Australian tax leaks information was used by its international partners. 

PwC Australia said the firm would “consider the [senate] report’s contents” and that it had made progress in “enhancing its governance, culture and accountability”. It has previously said PwC International, which commissioned the Linklaters report, had refused to release it as it contained privileged and confidential information.

The senate’s report expressed concern that the information gleaned was utilised more broadly than to promote tax avoidance schemes. It was also used “to influence the direction of negotiations to reform international tax systems”, it said.

Colbeck said PwC’s actions will remain under scrutiny from a separate senate inquiry and continuing investigations by the country’s tax regulators. “Any suggestion that this is going to go away is a forlorn hope,” he said.