The Big 4 are too big, too powerful, too secretive, and corrupt. The PwC scandal is merely the tip of the iceberg. The answer is to break them up and force them to incorporate. They thrive in secrecy. Michael West reports.
The first story we published at Michael West Media seven years ago, Oligarchs of the Treasure Islands, featured a former PwC partner George Rozvany:
“The Big Four have, under a Rasputin-like cloak of illusion strayed from their original and critical role of verifying the accuracy of financial accounts for all stakeholders, to be “accountants of fortune” merely representing the accounting position for multinationals and developing aggressive international tax avoidance practices”.
The PwC scandal, where the biggest of the Big Four has just been caught giving the government advice on laws to combat multinational tax avoiders, then passing the secrets to its multinational tax avoiding clients, has shown George Rozvany’s words to be prescient.
Quis custodiet ipsos custodes? Who audits the auditors? If you call them up and ask them, they won’t tell you. The world’s most powerful financial firms PwC, KPMG, EY and Deloitte are also the most secretive of all large global institutions.
The biggest secret
These are not companies, corporations required to report publicly their financial statements. They are partnerships, arcane structures centuries old, which allow them to hide everything about themselves. Their only disclosure requirement is to issue a – drumroll for irony – “Transparency Report” once a year.
And their only transparency requirement is to disclose how much revenue they made the previous year. Here is PwC’s glossy 39-pager. They racked up a 17% rise in revenues last year – that’s total income, not profit – to $3bn dollars. It has been almost wall-to-wall double digit revenue rises for the Big 4 for years.
Who else has that kind of consistent surge in revenue? Only those with the game sown up, only monopolies.
What PwC has done
How bad is it, what PwC has done? Bad.
Broadly, they betrayed the Federal government, which pays them hundreds of millions a year in consulting fees, in favour of passing tax secrets to their multinational corporate clients. The cost to Australians? Perhaps billions.
What is the penalty? One PwC partner is fired and the firm is ordered to do some internal training about conflicts of interest and maintain a register of confidentiality agreements. A course.
More specifically, PwC received confidential information from the Treasury on legislation and policy positions intended to combat multinational tax avoidance and illegal profit shifting. Commonwealth Confidentiality Acknowledgements were signed by PwC three times – in December 2013, April 2016 and February 2018.
Despite this, the firm distributed this confidential information internally and with overseas accountants (who are partners in other firms) too. The aim was to market for profit the confidential information and documentation to new and existing clients so those companies could avoid the very rules on which PwC was being consulted by the Australian government. You could call it treason.
The double standard
If the definition of fraud is “obtaining a financial advantage by deception”, this is a gigantic fraud. Yet, while PwC has one guy deregistered as a tax practitioner, is forced to establish a compliance course and set up a register of conflicts, as observers on social media noted, the state sends children to jail for theft and pursues small time tax dodgers avidly. This from a news service.
A South Australian woman has been sentenced to 4 months imprisonment after being convicted of falsely claiming almost $10,000 in income tax deductions.
Ms Jessica Medcalf lodged 22 original and amended income tax returns for the years from 2015 to 2018. Each tax return contained overstated work-related expenses and understated her income.
there is no penalty, or little, for serious corporate malfeasance and the Big 4 are too big, beyond regulation
The problem of course is not that Big 4 types are worse people than the rest of us. It is rather that a culture of “we can get away with this” has been allowed to flourish over many years because there is no penalty, or little, for serious corporate malfeasance and the Big 4 are too big, beyond regulation.
KPMG was outed in a massive cheating scandal involving more than one thousand people in audit. The penalty? The burden of being asked to self-discipline.
The board found that from at least 2016 until 2020, KPMG Australia failed to identify that more than 1100 firm personnel, including more than 250 auditors, were involved in cheating on tests for mandatory training courses that included professional independence, auditing, and accounting. The cheating involved improper answer sharing including the giving and receiving of answers relevant to the tests.
Over at Deloitte, the firm was found by Michael West Media to have been overcooking estimates about how much tax and royalties the mining industry pays in Australia by billions of dollars a year. Penalty? Zero. Deloitte’s client was the mining lobby Minerals Council of Australia. The gig was passed to EY which did exactly the same thing.
After years of identifying shonky Big 4 audit work for large corporations, there was finally a parliamentary inquiry into the Big 4. It was a total flop.
Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.