How the big four accounting firms infiltrated governments, earning more than $10b over a decade while taxpayers are in the dark
The numbers are staggering. In the past decade Australia’s state and federal governments have forked out more than $10 billion on the big four accounting firms — money that could have paid for 200 schools, 10 or more prisons, four world-class hospitals or a third of the annual Medicare bill.
They’ve been described as an infestation. They sit in government departments on secondment, occupy hundreds of boards across Australia and earn billions of dollars consulting to the public and private sector. The big four accounting firms — EY, Deloitte, KPMG and PwC — are now under the spotlight like never before.
Even more alarming is the growing reliance on the big four by the Department of Defence, which splurged almost $4 billion of taxpayer money on thousands of contracts with EY, Deloitte, PwC and KPMG. But it could be more.
These high priests of capitalism have been carrying on the dual role of auditing and consulting for years and have largely been left to their own devices to manage the conflicts.
It allowed them to quietly infiltrate government departments and powerful organisations and burrow their way into more and more work that could have been done by public servants.
What we have now is a public service that has been hollowed out and become far too dependent on consultants, who are expensive and operate in the shadows.
Taxpayers in the dark
The magnitude of the money being spent by governments speaks volumes about the extent of their involvement. According to data collected from AusTender by data warehousing expert Greg Bean, who spent decades in data analytics, the Commonwealth spent more than $8 billion in the past ten years on the big four, increasing more than 600 per cent since 2013.
It’s a similar story for the states. NSW spent $504 million in the past four years on EY, Deloitte, KPMG and PwC, while Victoria spent $844 million and Western Australia $582 million.
The figures for state and federal governments are large but they don’t capture the total amount spent with the big four. There is no consolidated figure publicly available and Commonwealth Corporate entities are only required to disclose contracts worth more than $400,000, which means lots of contracts avoid disclosure on the AusTender site and some contracts are amended or extended. According to Bean’s analysis, almost one third of contracts were amended.
Government departments in NSW, for instance, routinely fail their obligations to post contracts on the eTender site. Additionally the site only includes current contracts which means expired contracts disappear from the site, making it difficult to keep tabs on the size of the overall bill and contracts below $150,000 are not disclosed on the site.
It means taxpayers are kept in the dark about the true size of the bill or how the state and federal governments are spending their money. Lack of transparency is rarely, if ever, a good thing.
Independent think tank, the Centre For Public Integrity, has also been assessing the procurement data of the big four and noted a sharp spike in so-called management advisory services, which it describes as the most opaque contracts of all
According to their figures, these contracts jumped 1276 per cent over 10 years to $605 million in 2022. Not surprisingly, the Department of Defence is driving most of the surge. It accounts for between 79.4 per cent and 26.6 per cent of each of the big four’s Commonwealth management advisory service income, according to the centre’s Catherine Williams.
She says other research found the big four make substantial political donations to both major parties.
In the case of the Department of Defence, Greens senator David Shoebridge is concerned about the number of consultants doing work for the department. “What have we got for $3.7 billion? How many secrets have we handed over in the course of these contracts? And, and how much have we lost? How effective has the big four’s plan been to effectively de-skill the public sector and make them essential in the defence space? I think when you line those questions up, one after another, you can see what a threat this is to integrity in this space.”
The aura of trust falls
Until now, the big four had built themselves an aura of credibility and trust in government and corporate Australia.
They built their roots as the sentinels of commerce by auditing the financial accounts of powerful multinational corporations and the rich and famous.
From there they morphed into tax advice and consulting, playing both sides of the fence: advising multinational clients how to minimise tax and governments how to collect more.
Despite their size and role in government, their partnership structure allows them to largely escape scrutiny. The partnership model means they don’t have to audit their accounts or release them publicly. Nor are they subject to the Corporations Act.
But the PwC scandal, which involved PwC partners using confidential government information to help clients such as Uber and Facebook sidestep tax laws, triggered some long-awaited scrutiny.
Where to from here?
They are now facing four separate parliamentary inquiries, federally and in NSW, which will unpick the conflicts and result in some reform.
Federally, Labor Senator Deborah O’Neill is leading the charge.
“These companies that once traded just in audit, have spread so far across society and into government, their tentacles are everywhere, they now consider themselves the power with a government beneath it, a government that they control and have power over,” she tells ABC’s 7.30.
On Monday, she will be on the parliamentary committee that is about to turn its attention to KPMG, with ex partner-turned-whistleblower Brendan Lyon invited to relay his experiences of bullying and intimidation when he wrote a report they didn’t like. The report concluded that a rail corporation set up by the NSW government to artificially inflate the state budget by billions of dollars didn’t stack up.
“I was being told every single day that either my work had to change or not be delivered at all. And I was not willing to countenance that. I guess you don’t want to be the one that everyone’s moving away from and when you walk down the hallways no one meets your eye,” he tells 7.30.
But his report would later be vindicated by the NSW auditor general who refused to sign off the state’s accounts until they were amended.
Lyon describes a culture at KPMG driven by sales at any cost. “The meetings are all about revenue and sales, the discussions are all about influence and who knows who in government, who knows who, in particular corporations, and the drive is very much about trying to get this leverage model of largely unskilled but bright young people in to occupy clients and to bill as much time as they can,” he says.
The drive to be indispensable has been described by NSW Greens MP Abigail Boyd as an infestation. Boyd launched a parliamentary inquiry into the big four last month, bringing the tally to four, one relating to PwC, one focussing on the dual role of auditing and one looking at ASIC.
“It’s not just that they’re sitting outside with their tentacles in, they’re actually now infested.
The organisations are the systems and processes and they have now dictated what the government looks like,”she says. “That we need to unpick. And we need to do it if we’re to get back any sense of democracy in our state.”
This article by Adele Ferguson was originally published by The ABC