The leaking of confidential tax information, in breach of non-disclosure agreements, by PwC personnel, and its exploitation by a firm that makes a significant chunk of its US$50 billion global revenue from facilitating tax avoidance, isn’t the first time PwC has run afoul on conflict of interest at the Commonwealth level.
In 2015, while implementing the Coalition’s mass surveillance “data retention” program, the Attorney-General’s Department (AGD) hired PwC to develop a costing model for industry implementation of the scheme to force communications companies to bulk-store Australians’ personal data, in order for industry to be part-compensated through a grants program.
As Crikey has long chronicled, the AGD not merely has a near-total indifference to the most basic rights of Australians, but it also is serially incompetent, especially when it comes to IT.
PwC had, as clients, a number of communications and IT companies, including Telstra, perhaps the main beneficiary of any government program to offset the industry cost of its surveillance program. It also had a “strategic alliance” with a major software vendor offering a data retention product.
What steps did the AGD and PwC take to address this fundamental conflict of interest? PwC told the AGD about Telstra before it was hired, but waited until after it was hired to admit it had internet service providers as clients as well. It took another company to point out to the AGD that PwC was working with a software vendor that would end up being a beneficiary of the grants.
The AGD didn’t bother getting conflict of interest declarations from PwC about the issue because it didn’t think there was much potential for conflict of interest — and thought it would be covered by generic declarations signed by all consultants. In doing so, it violated its own guidelines about dealing with conflict of interest in procurement.
All this was laid out in a forensic Australian National Audit Office (ANAO) report in 2018.
The data retention case contains little of the high stakes and international dimension that characterise the PwC tax law leak, so brilliantly detailed by Neil Chenoweth and Edmund Tadros at the Financial Review throughout this year. But it demonstrates the paradox at the heart of the large consulting firms working for governments.
Large consulting firms — the big four, McKinsey & Company, BCG — inevitably have large numbers of corporate clients, many if not most of whom will be directly affected by government policy at some stage, whether specific industry programs like a data retention grants scheme, or general policies like tax. So, equally inevitably, when they provide advice to governments, they have a conflict of interest in a way that no public servant ever does.
And the AGD isn’t the only one poor at managing conflicts of interest. It’s a systemic problem in the public service, one that has naturally worsened as the size of the government’s annual spend on consultants surged under the Coalition — more than doubling over the past decade, according to the ANAO, to nearly $900 million per annum, including a total of over $1.1 billion to the big four for consultancy services alone. For the ANAO, the failure of the public service to effectively manage the conflicts of interest that are foundational to its use of consultants is a persistent source of angst, to which it has devoted entire publications explaining what good practice is and isn’t.
It’s not a problem confined to Australia. Last year, a US Congress investigation showed that McKinsey had simultaneously advised the US Food and Drug Administration and opioid manufacturer Purdue. McKinsey ended up paying a US$573 million fine for helping Purdue “turbocharge” opioid sales, killing tens of thousands of Americans, while working with the FDA to improve drug safety. Indeed, the same McKinsey partners were simultaneously working with the FDA on drug safety while advising Purdue on how to combat the FDA’s efforts to improve drug safety.
The worst Australian example of big four conflict of interest in recent times before PwC was at the state level, in KPMG’s disgraceful dual roles in advising different NSW departments about the discredited Transport Asset Holding Entity, which led to a senior then-KPMG partner being pressured by KPMG leadership to change his advice to meet the demands of another, more senior client.
But how many times has the lack of a parliamentary investigation, or the absence of an ANAO audit, meant large consulting firms were able to exploit their dual links between governments and corporate clients?
And even when departments do attempt to address conflicts of interest by major consultants, the nature of large consulting firms defeats them. Earlier this week, in yet another report revealing bungling in the Department of Home Affairs, the ANAO found that the department had decided to exclude commercial adviser Deloitte from a major IT procurement process, only for one of the relevant Deloitte partners to begin advising another of the tenderers involved.
Sometimes the sheer breadth of consulting firm clients defeats efforts to overcome conflicts of interest: the Australian Renewable Energy Agency was criticised by the ANAO for using some of the same consultants it was paying grants to, or who were working with grant recipients — including one of the big four — to evaluate its programs.
Despite “good practice” requirements for conflict of interest management in public service departments, and the blithe assurances of large firms about “Chinese walls”, conflict of interest is in the very nature of large consulting firms. It’s central to their business model, rather than being a bug that can be fixed.
There’ll be more McKinseys, more PwCs, as long as large consultants are used by governments. And public servants are either unwilling or unable to prevent it.
