Conflict of interest should kill the government’s consulting reliance


The leaking of confidential tax data, in breach of non-disclosure agreements, by PwC personnel, and its exploitation by a agency that makes a major chunk of its US$50 billion world income from facilitating tax avoidance, isn’t the primary time PwC has run afoul on battle of curiosity on the Commonwealth degree.

In 2015, whereas implementing the Coalition’s mass surveillance “knowledge retention” program, the Legal professional-Basic’s Division (AGD) employed PwC to develop a costing mannequin for business implementation of the scheme to drive communications corporations to bulk-store Australians’ private knowledge, to ensure that business to be part-compensated by means of a grants program.

As Crikey has lengthy chronicled, the AGD not merely has a near-total indifference to probably the most fundamental rights of Australians, nevertheless it is also serially incompetent, particularly with regards to IT.

PwC had, as purchasers, quite a few communications and IT corporations, together with Telstra, maybe the principle beneficiary of any authorities program to offset the business value of its surveillance program. It additionally had a “strategic alliance” with a significant software program vendor providing a knowledge retention product.

What steps did the AGD and PwC take to handle this basic battle of curiosity? PwC instructed the AGD about Telstra earlier than it was employed, however waited till after it was employed to confess it had web service suppliers as purchasers as properly. It took one other firm to level out to the AGD that PwC was working with a software program vendor that might find yourself being a beneficiary of the grants.

The AGD didn’t trouble getting battle of curiosity declarations from PwC in regards to the subject as a result of it didn’t assume there was a lot potential for battle of curiosity — and thought it might be coated by generic declarations signed by all consultants. In doing so, it violated its personal pointers about coping with battle of curiosity in procurement.

All this was specified by a forensic Australian Nationwide Audit Workplace (ANAO) report in 2018.

The info retention case incorporates little of the excessive stakes and worldwide dimension that characterise the PwC tax regulation leak, so brilliantly detailed by Neil Chenoweth and Edmund Tadros on the Monetary Assessment all through this yr. However it demonstrates the paradox on the coronary heart of the massive consulting companies working for governments.

Massive consulting companies — the large 4, McKinsey & Firm, BCG — inevitably have massive numbers of company purchasers, many if not most of whom will likely be instantly affected by authorities coverage at some stage, whether or not particular business applications like a knowledge retention grants scheme, or common insurance policies like tax. So, equally inevitably, once they present recommendation to governments, they’ve a battle of curiosity in a means that no public servant ever does.

And the AGD isn’t the one one poor at managing conflicts of curiosity. It’s a systemic drawback within the public service, one which has naturally worsened as the scale of the federal government’s annual spend on consultants surged below the Coalition — greater than doubling over the previous decade, in keeping with the ANAO, to just about $900 million, together with a complete of over $1.1 billion to the large 4 for consultancy providers alone. For the ANAO, the failure of the general public service to successfully handle the conflicts of curiosity which might be foundational to its use of consultants is a persistent supply of angst, to which it has devoted total publications explaining what good apply is and isn’t.

It’s not an issue confined to Australia. Final yr, a US Congress investigation confirmed that McKinsey had concurrently suggested the US Meals and Drug Administration and opioid producer Purdue. McKinsey ended up paying a US$573 million high quality for serving to Purdue “turbocharge” opioid gross sales, killing tens of 1000’s of Individuals, whereas working with the FDA to enhance drug security. Certainly, the identical McKinsey companions had been concurrently working with the FDA on drug security whereas advising Purdue on easy methods to fight the FDA’s efforts to enhance drug security.

The worst Australian instance of huge 4 battle of curiosity in current occasions earlier than PwC was on the state degree, in KPMG’s disgraceful twin roles in advising completely different NSW departments in regards to the discredited Transport Asset Holding Entity, which led to a senior then-KPMG associate being pressured by KPMG management to alter his recommendation to satisfy the calls for of one other, extra senior shopper.

However what number of occasions has the dearth of a parliamentary investigation, or the absence of an ANAO audit, meant massive consulting companies had been capable of exploit their twin hyperlinks between governments and company purchasers?

And even when departments do try to handle conflicts of curiosity by main consultants, the character of enormous consulting companies defeats them. Earlier this week, in yet one more report revealing bungling within the Division of Dwelling Affairs, the ANAO discovered that the division had determined to exclude industrial adviser Deloitte from a significant IT procurement course of, just for one of many related Deloitte companions to start advising one other of the tenderers concerned.

Generally the sheer breadth of consulting agency purchasers defeats efforts to beat conflicts of curiosity: the Australian Renewable Power Company was criticised by the ANAO for utilizing a number of the identical consultants it was paying grants to, or who had been working with grant recipients — together with one of many large 4 — to guage its applications.

Regardless of “good apply” necessities for battle of curiosity administration in public service departments, and the blithe assurances of enormous companies about “Chinese language partitions”, battle of curiosity is within the very nature of enormous consulting companies. It’s central to their enterprise mannequin, moderately than being a bug that may be fastened.

There’ll be extra McKinseys, extra PwCs, so long as massive consultants are utilized by governments. And public servants are both unwilling or unable to forestall it.

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