Christopher Pyne
(Image: AP/Andy Wong)

While Christopher Pyne’s new gig with EY (formally Ernst & Young) warrants an examination of the failure of the purported ministerial code of conduct to halt the revolving door between the ministerial wing and the private sector, any Senate inquiry should focus on a much bigger issue: scrutinising the big four accounting firms’ rapidly growing role in government.

That the government has been handing ever more money in recent years to private companies for management consultant services — i.e. the kind of services traditionally provided by the Australian Public Service — seems undeniable. An Australian National Audit Office (ANAO) report in late 2017 showed a marked increase in consultancy spending under the Coalition. Private analyses like those done by Michael West, who has been the most assiduous investigator of the role of the big four in tax avoidance and government contracts, also shows surging revenue for consultants.

But the government — both at the political level and at the public service level — has persistently either denied any increase or pretended that it’s simply a matter for individual public service managers unrelated to government decisions. The Department of Finance tried to argue that the use of consultancies “has remained relatively stable” by using a peculiar figure for the proportion of consultancies versus all Commonwealth contracts — although even that showed a marked uptick under the Coalition.

That finance submission was in response to a Joint Committee of Public Accounts and Audit (JCPAA) inquiry last year that followed the ANAO report — although the inquiry never reported before the election. The ANAO had identified a number of causes for concern about the surging level of consultancy spending. These include departments rushing out spending right before the end of the financial year, disproportionate numbers of contracts just below the $80,000 reporting threshold (including contracts being broken up into smaller chunks), and a diminishing number of open tender contracts.

A bigger problem — one also identified by the ANAO — is that the primary data source for all government contracts, the Austender site, has significant flaws, including duplicate entries and inconsistent use of categories that makes it very difficult to get an accurate picture across different agencies.

As Danielle Wood argued in the Grattan Institute’s submission to the inquiry,

‘Management advisory services’ is the largest category by value of consulting services provided to the Commonwealth Government. However, most contracts for ‘management advisory services’ are not classified as consulting contracts. Narrowing the analysis to just the ‘Big 4’ consulting firms, only around a quarter of the value of their contracts with the Australian Government are flagged as consulting contracts.

In fact, an entire category of consulting services, probity advice (where independent consultants vet the probity of procurement processes) appeared not to be captured in consulting contract data.

Why is all this worth a Senate inquiry? Because the big four firms represent a systemic threat to effective democratic government.

  1. The big four are now the largest group of political donors in Australia, meaning that they are being awarded contracts by the politicians they are funding with political donations.
  2. The big four are a core part of the global system of corporate tax avoidance and profit shifting that deprives countries around the world of hundreds of billions in critical tax revenue.
  3. The big four are hopelessly conflicted in their joint roles as providers of audit services and providers of management consulting services both to corporations and government agencies, creating an unresolvable tension between the incentive to win contracts and their ostensible role as independent auditors.
  4. The growth in the provision of consulting services continues the process of infantilising and disempowering governments and extends it into a new area: whereas in the past outsourcing has tended to strip bureaucracies of specialist skills like IT and legal skills, consulting contracts push that process into the core role of provision of policy advice.
  5. A constant expansion in consultancy contracting creates a virtuous circle for the big four in Canberra — the more contracts they win, the more expertise and contacts they develop within the bureaucracy, the better they are able to win future contracts. Large firms thus become entrenched in what is becoming an oligopolistic market for consultancy services, reducing value for money for taxpayers.
  6. But there is literally no way for the public, or parliament, to determine if any big four consultancy is delivering value for money for taxpayers, and better value for money than a full-time APS official would have provided in the same role. Only the ANAO can identify poor value for money or service failures, and it has a limited budget and personnel spread across the public service and a range of different kinds of audits.

Any inquiry into Christopher Pyne should pick up where the JCPAA left off, and push for much greater transparency around the most significant development in public sector governance in decades.

Can Australia front up to the influence of the big four? Will Pyne’s new role with EY come under the Senate’s spotlight? Send your thoughts, along with your full name, to boss@crikey.com.au