Thu Jun 1

the PwC scandal should be ripe for the National Anti-Corruption Commission's attention

Written by Michelle Grattan, Professorial Fellow, University of Canberra

By coincidence, the furore around the consultancy firm PwC is raging just as the National Anti-Corruption Commission is gearing up for its start of business on July 1.

The PwC scandal, involving the use of confidential government information for financial gain, would seem an ideal probe for the NACC to cut its teeth on.

Despite this, Anthony Albanese sounded less than enthusiastic when asked by Greens leader Adam Bandt in question time this week whether he would make a referral. The police were already looking at the matter, the PM said, “so it’s gone well beyond the step that the member suggests”.

Regardless of whether the government (or anyone else) refers the matter, a decision on whether to look at PwC’s behaviour will be totally up to the NACC, which is headed by Paul Brereton (formerly of the Afghanistan war crimes inquiry). It’s an independent body and can undertake inquiries on its own initiative.

Meanwhile the Senate estimates hearings – which delve deeply into government processes – have already done a pretty good job laying bare the outrageous behaviour by the consultancy firm, although there are a lot more names to be made public.

At its heart, the PwC affair is simple, a stark example of improper behaviour by a firm taken into the government’s confidence. PwC was consulted by the Abbott government on its planned tax avoidance legislation and was privy to confidential information. It then used the knowledge obtained in discussions with Treasury to tell clients how to avoid the crackdown.

While what happened is simple, the questions arising from this egregious breach of confidentiality and ethics – which Treasury has referred to the Australian Federal Police – are less so. The affair has far-reaching and complex implications, obviously for PwC – the Australian arm of which is now on its knees – but also for government (including the public service) and how it relates to outside consultants.

In her open “mea culpa” letter this week, Kristin Stubbins, the acting chief executive of PwC Australia, listed three ways the company had “failed”. PwC had breached confidentiality, had poor governance, and had a culture at the time of “aggressive marketing” in its tax business that allowed inappropriate behaviour.

Obviously there is always the potential for conflict of interest for firms that, on one hand, consult with government and, on the other, advise clients who are dealing with the actions of government. The question some ask is: can this dual role be tenable in one firm?

On another front, what’s happened has underscored how dependent the federal government has become on outside consultants, particularly the “big four” consultancy firms.

PwC is like a giant octopus reaching into officialdom. As canvassed in the Senate hearings this week, it is an external auditor for the Treasury, and it also undertakes work for the Reserve Bank. It deals with a large slice of defence procurement.

Under the Morrison government, ministers such as Stuart Robert were always urging the use of outside consultancies, rather than the bureaucracy, to give advice or undertake reviews. And in ministerial appointments to various agencies and the like, people who’d worked in these firms were often favoured candidates.

Notably, the Coalition has not shown great interest in pursuing the PwC affair. In contrast, Labor senator Deb O'Neill has been a bulldog in chasing material, and Greens senator Barbara Pocock has carried the issue for her party.

In opposition, Labor strongly condemned the Coalition government’s extensive contracting-out of work that public servants would once have done. In office, Labor is now cutting back on outsourcing and beefing up the bureaucracy.

Even so, the recourse to outside expertise can’t be avoided entirely. Some issues (including relating to taxation) require tapping into non-government specialists. So stronger belts and braces will still be needed.

The government already has some initiatives under way to strengthen protections. Treasury is working on what more might be needed.

Treasurer Jim Chalmers is particularly angered by the breach of faith, not least because of the importance he puts on consultations in developing policy. Such an approach is undermined by any risk of those consulted misusing their access.

While PwC is a totally black-and-white case, there can be shades of grey in the issue of access to confidential information and government thinking, which can give recipients an inside run, even when financial advantage isn’t involved.

To an extent, the fallout from the PwC affair will itself provide a degree of protection for the future. Whatever the outcome of the police inquiry, the huge reputational and financial damage to the firm will be a powerful deterrent to such behaviour by others.

PwC itself will have difficulty getting much fresh government work for the time being. Finance Department Secretary Jenny Wilkinson reminded the public service last week that ethical considerations must be taken into account in awarding contracts.

On Wednesday Reserve Bank Governor Philip Lowe told an estimates hearing the bank was not ditching present contracts with PwC, but would not enter into new contracts with it until it had made a “satisfactory response”, which included “complete transparency and accountability for those involved”.

So how far should the government go in punishing PwC? Once the present crisis has passed should there be a moratorium for a specified period on the use of the firm?

Simon Longstaff, director of The Ethics Centre, suggests a temporary moratorium on government contracts while the firm gets its house in order. This time in purgatory would be followed by a period in which the firm would have to demonstrate (according to an independent assessment) that its culture underpins a genuine commitment to the public interest as a condition of obtaining contracts. This special requirement would fall away once the basis for trust had been re-established.

Barbara Pocock wants the book and more thrown at PwC. She has urged a ban on any new government contracts being awarded to the firm until it has re-established trust – “which is likely to be quite some time” – plus the termination of any existing contracts where there is a conflict of interest.

Pocock also says the NACC should investigate the extent of involvement of PwC operatives and the roles and slow action of staff at the Australian Taxation Office, the Treasury and the Taxation Practitioners Board. This should be in addition to the police investigation.

Whether or not the NACC takes up the PwC case, what’s happened there reinforces the argument for the anti-corruption body.