A Consulting Conundrum

Debunking the Myths: Should The Scrutiny Be On Firms’ Behaviour Or The Government’s Overreliance?

M. E. George

YOU MAY WELL HAVE SEEN the recent headlines regarding PWC or the big four consulting firms, and how they’ve supposedly infiltrated the Australian public sector in the pursuit of mega profits. But is consulting really a ‘dirty’ word like the media presents it to be? And does the government have any role to play?

It’s been reported that the Morrison government spent close to AU$21 billion on external advisors in its final year, comprising a mix of outsourcing, private labour hire, and consulting – the latter making up only a small portion. So, what’s the incentive behind this spending of taxpayer money? In general, consultancy refers to the practice of helping organisations increase efficiency and profits. The four major consulting firms in Australia are PWC, KPMG, Deloitte, and EY. Consultants arguably make up for a skills shortage in the public sector and provide expert knowledge and an external perspective, identifying and addressing structural and strategic challenges in government agencies that seek to improve the operation of the public sector.

However, the government has recently become reliant on external resources. Instead of using its own capabilities, the government has spent billions of taxpayer dollars on consultants. Under the Abbott, Turnbull and Morrison Coalitions, there was an explosion in the number of consultants, stemming from recruitment freezes impacting the size and capability of the public sector.  Spending on large consultancy firms is six times higher than it was a decade ago.

For example, the government has recently looked to hire a consultant to consult on how best to deal with other consultants. Now that’s just ridiculous, right? This overreliance on consultants undermines the long-term capability of the public service. So, the government should look towards an appropriate balance in its use of external advisors, ensuring in-house capability in the public sector without an over-reliance on consultants. We see Labor rebuilding the public sector, which has been hollowed out by the Coalition. In the last two budgets, we have seen increases in public service by 19,000 people.

Now let’s move on to the behaviour of consulting firms, of which it’s safe to say there’s been a fair bit of publicity recently. Much of what has been reported in the media relates to the idea that a fundamental conflict of interest exists in consultancy operations in the public sector. The public belief is that what the government aims to achieve with social policy is at odds with the ability of its clients to maximise profits. But the public doesn’t understand the nuanced rules around what is (and what isn’t) a conflict of interest. In reality, while it is important that they are managed, when it comes to the interactions between consultancies and governments,  conflicts of interest don’t inherently exist. Problems can arise when conflicts are poorly managed, or individual breaches of agreements with the government are made.

However, it’s the perceived conflict of interest that matters just as much as actual conflicts of interest, as both erode public faith in the government. So whatever may be the public opinion, consultancy firms have to understand and address community expectations to avoid friction in the government’s relationship with taxpayers.

Take PWC, one of the government’s biggest beneficiaries, which has received over $537 million in government contracts over the last two years. They’ve received a lot of publicity following a recent scandal uncovered in January this year.  An individual consultant reportedly misused confidential taxation information in a bid to bolster PWC’s profits, advising their multinational clients on how to avoid taxation under the new legislation which the PWC consultant had advised the government on. Quite ironic, don’t you think, given the objective of the contracted advice was to address tax avoidance by global corporations? PWC broke the law by breaking a signed confidentiality agreement, which created a conflict of interest, not the other way around, as the media would have you believe.

Needless to say, we can’t taint a whole industry with the actions of one individual action. As of yet, no evidence has been brought to light to suggest widespread abuse of contracted obligations or a failure to manage conflicts of interest, among other consulting firms. Consultants must be held to account for adequately managing potential, actual or perceived conflicts of interests and acting in good faith by not breaching contractual agreements. So, despite how it’s often presented in the media, consulting is not necessarily a ‘dirty’ word unless it’s not properly managed.

What remains clear, however, is that greater transparency ought to exist between the government and Australian taxpayers in relation to its use of consultants. Following the PWC case, government inquirers were ordered to investigate the use of consultancy firms by the Federal Government. We look forward to hearing the result of these inquiries, ensuring that consultants and public sector agencies play their role in minimising further complications and restoring faith in the government’s use of consultants and how it serves the people.