Investigation: social welfare cheats targeted while corporate welfare elite runs amok

by | Jan 20, 2017 | Finance & Tax, Government

Story by Geordie Wilson and Michael West

AS the storm over social welfare rumbles on with Centrelink and its breathtaking debt recovery bungle, it is worth considering Australia’s corporate welfare elite.

It was reported here last year the Big Four accounting firms had picked up $2.6 billion in fees from the Australian government over the past ten years; two thousand six hundred million dollars that is for writing reports, paper shuffling. This is a conservative estimate mind you, based only on the visible data.

Now to the states. How much do state governments fork out to PwC, EY, KPMG and Deloitte for telling them what they want to hear?

This is a murky swamp – the data is difficult to access, it is opaque. Though it is fair to say that Australian governments, state and federal, over the past ten years have probably showered more than $5 billion on these four champions of corporate welfare.

The first thing which can be said is that it is impossible to investigate with any precision how much each state has forked out to the Big Four accounting firms.

Disclosure is shocking. NSW is best of a bad bunch – closer to the federal disclosure regime – and Western Australia is worst. The other states are somewhere in between but none, not one state, has an acceptable disclosure platform.

So what do we know? In NSW, $400 million has been spent on the Big Four over the past ten years, 50 per cent of which was showered on PWC alone.

To put this figure in perspective; over the same time, the state government of NSW could have employed an extra 800 nurses, police officers and teachers – people who have a vital role in society, rather than fancy consultants who write reports to provide an imprimatur for politicians.

On this subject, the question of why government is splashing so much money on these consultants, PwC was paid almost $10 million by the federal government to pen its study last year about social welfare bludgers, the report that is, which preceded Centrelink’s attack on welfare bludgers.

For a 132 page report, including glossary, this comes in at a cool $75,000 a page.

(Editor’s note: there has been concern expressed at the authors’ use of “bludgers”. We were being tongue-in-cheek but agree this is a reasonable concern from readers. Most recipients of welfare are not bludgers. Indeed the PwC report – see link below – includes pensioners and the disabled as those who are a drag on the budget and will contribute to the blow-out in social welfare costs in coming years.)

PwC gives bludgers a lesson in corporate welfare

Bear in mind that PwC had charged Canberra a cool $365 million before knocking out its social welfare report. These consulting warriors were hardly going to tell the politicians who commissioned them what they did not want to hear.

But back to the states. Western Australia is a disclosure abomination. Despite the gargantuan amounts spent on policy consulting during the mining boom, the extent of the financial relationship between government and the Big Four is simply unknowable.

The first problem is that the WA database does not provide a capacity to aggregate how much money is being spent by the state due to diversity of ABNs (Australian Business Numbers).
While it is possible to search for the name of each big firm in the contract registry, subsidiaries are not included.

The second problem is unusable databases. Besides the black-out on ABNs, there are additional state-by-state problems relating to disclosure.

Again, NSW is better than the others. Its contracts disclosure database is identical to the very good Commonwealth government platform. Although ABN issues remain, it is possible to export data into Excel for analysis.

We know merely from exporting data that the main entities (the overall partnerships) of the Big Four accounting firms have earned at least $400 million from the NSW government over ten years.

These include an outrageous $10 million fee for a single report. We suspect the amount received is much higher than $400 million but the identity of subsidiaries is locked behind the paywall of the Australian Securities & Investments Commission (ASIC). The corporate regulator’s search fees are the highest in the world rendering detailed investigations difficult due to prohibitive search costs.

A senior source at one of the Big Four who wished to remain anonymous said the figure of $400 million over ten years paid to the Big Four in NSW was “far too low”.

Government contracts, he said, were “a primary source of revenue” The inability to search for subsidiaries on the contracts disclosure registry is inadequate. The corporate veil is preventing taxpayers from knowing how their money is being spent.

Investigation: ASIC fees highest in world, even before data sale

As to the ability of the public to use the database, our investigation found the WA interface to be virtually unusable, the main issue being that contract amounts and vendors are aggregated. It is impossible to see how much money each contractor is being paid for each contract.

It is impossible therefore to see how much money each of the big four is receiving from the state government each year.

A single contract in Western Australia was awarded in the amount of $753 million yet there were nearly 40 firms mentioned on the contract disclosure.

The project itself was co-ordinated by PWC, so it is reasonable to assume PWC received a very large cheque but why should the public have to assume anything about how its tax is being spent?

Every contract and every contractor should be clearly disclosed. Victoria’s regime is not good. The contracts disclosure regime does not allow exporting of data into a spreadsheet for analysis, and contracts are too numerous for manual tabulation of fees.

Further, the disclosure widget on the website does not have an API (application programming interface key), so it is also impossible to attempt to tabulate the data by computer.

The net effect is the Victorian disclosure regime is effectively useless for working out how much money a contractor is milking from the Victorian taxpayer each year. South Australia, Queensland and Tasmania have the same issue as Victoria. The disclosure regime did not allow for the amounts to be calculated that is being paid to the big four each year.

As for the Big Four themselves, despite their relentless rhetoric and holy advice about transparency and disclosure, there is virtually nothing.

George Pell silences PwC, EY, KPMG & Deloitte

All four are required to produce “transparency reports” every year, which are basically marketing documents, fluff.

The 2016 transparency report by the biggest of the Big Four, PwC, shows $1.9 billion in revenue, of which $1.3 billion – the lion’s share – came from “revenue for non-audit services provided to non-audit clients”. We can assume this covers reports for government.

EY’s 2015 transparency report has no breakdown at all on the $1.1 billion in overall revenue.

The largest item in Deloitte’s $1.54b of revenue in 2016 is, like PwC, ascribed to “non-audit services for non-audit clients”. That’s $1.2 billion.

Likewise KPMG: “non-audit services for non-audit clients” represented 67 per cent of the firm’s $1.4 billion in revenues.

As partnerships, none of the firms produce accounts. The last “annual review” of PwC, 2013, showed how important is transparency. They lumped in government with other revenue streams: “Resources, Services & Government 680,440 696,018”.

If government wants to save some taxpayer money it should demand far greater transparency in its procurement. Does anybody even check this $5 billion or so of payments for consultancy? Same deal for the big law firms and other consultants.

Real transparency is key.

Michael West

Michael West

Michael West established to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences. You can follow Michael on Twitter @MichaelWestBiz.

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