Australia remains a serious international laggard when it comes to regulating the big four accounting firms, which are behind much of tax revenue lost to multinational tax avoidance and guilty of industrial scale conflicts of interest between their roles as auditors and as consultants. They have also emerged — not coincidentally — as dominant sources of political donations at the same time as they have taken advantage of public service cuts to secure billions in contracts for consultancy and policy advice services to government.
Australian politicians have refused to address the persistent issue of the conflict of interest between the major audit firms’ audit and consultancy roles, despite ASIC flagging the issue over and over. In contrast, the UK competition regulator has just demanded that the big four be split into separate consulting and auditing arms and that major companies be required to hire two auditors. The Brits simply got tired of conducting ASIC-style reviews. “Just carrying on doing more reviews is not going to take us very far. We now have to make a start and that’s going to require legislation,” the head of the Competition and Markets Authority said.
Here, ASIC is left conducting surveys that flag significant conflict of interest issues, with barely a flicker of interest from politicians.
At least in one area, the big four may come under greater pressure after the election. Last year, Labor promised — somewhat vaguely — to curb contracting out in the public sector, especially in IT, and remove the current cap on the number of public servants in each agency, albeit within existing funding. Yesterday, however, the Greens committed to capping the level of agency expenditure that could be directed to outsourced contracts to 7.5%, which would act as a check on the rapidly growing flow of taxpayer money to E&Y, KPMG, PWC and Deloitte, as well as other major consulting firms like BCG and McKinsey.
The big four are at the centre of a profoundly troubling web that links taxpayer funding and the provision of policy advice — often from consultants with no specific sectoral expertise — to millions in political donations to the major parties, the systematic undermining of government tax collection worldwide by companies using the services of the big four and the loss of trust in large companies because of conflicted auditing. These companies help create the problem of governments lacking revenue to properly fund their public sectors, and then offer to fix the problem by offering their own services, while auditing companies with which they have lucrative commercial arrangements. The relentless expansion of big four government services embeds them in the heart of a government in a way that hasn’t been seen before in the Australian public sector, with apparently little thought given to the conflict of interest this creates — they even provide services to Treasury and the Australian Tax Office, where tax policy is formulated and implemented, despite their role in facilitating multinational tax avoidance.
Across multiple fronts, the big four are a direct threat to good governance and Australia’s tax base. Capping their access to taxpayer funding is only a start in the process of addressing the threat.