Consultants take taxpayers to the cleaners

By Leith van Onselen

Back in September, Michael West reported how the Big Four accounting firms have taken corporate welfare to an extraordinary level, earning up at least $2.6 billion in fees from the Australian government over the past ten years at the same time as they advise multinationals on how to avoid paying tax.

It was a theme also picked up over at Fairfax, which revealed that while the Abbott Government was busy slashing the public service, the Big Four accounting firms cashed in:

ScreenHunter_15140 Sep. 28 08.54

Then in June, Adam Creighton noted the hyper-inflation of consultants since 2012, many of whom are sucking at the taxpayer teat:

The ranks of the phantom public service have been steadily expanding, and governments should tell the public by how much…

The number of “management and organisation analysts” in Australia — an occupation category that includes management consultants — has grown by 8000 since 2012 to about 60,000, according to the Australian Bureau of Statistics.

The share ultimately dependent on government money is probably high. Australian state and federal governments spent $1 billion in 2015, 7.5 per cent more than a year earlier… Governments were their third biggest source of revenue, in fact…

The growth of consultants reflects a broader dereliction of duty by political and corporate leaders, who either can’t make a decision or want to blame someone else if their ideas turn out to be duds.

Yesterday, The Australian’s David Crowe reported that the nation’s big four consulting firms have reaped a $1 billion in fees from the federal government over the last three years as the public service turned to outside contractors to do more work:

The spending surged in the first full year after Tony Abbott took power and kept growing under Malcolm Turnbull to reach $420.4 million last year, putting it on track to hit another record unless the government reverses the trend toward outsourcing…

The spending on the big four consulting firms across the federal public service rose from $196.4m in the year to June 2014 to $381.7m the following year and $420.4m the following year.

Senator Xenophon said the “exponential” increased raised serious questions about the spending.

“Surely there’s enough expertise amongst 243,000 commonwealth public servants to have provided a lot of these services that taxpayers have forked out nearly a billion dollars for in just three years,” he told The Australian.

“The government needs to urgently explain why at a time of belt tightening for practically everyone else, they seem to have let it rip for the big four accountancy firms…

KPMG won contracts worth $395.1m over the three years, followed by Ernst & Young with $270.7m, Deloitte with $223.6m and PWC with $109.1m. This added up to $998.5m.

There are several reasons why governments prefer to use consultants over the public service.

Most notably, it provides them with cover. They can claim that a given policy is based on “independent advice”, even though the results are often pre-determined and effectively purchased. It also allows governments to deflect blame to the consultancy firm (read cover their arse) in the event that a policy goes bad.

However, the problems run deeper than merely replacing one set of workers with a more expensive set of workers. It also reflects the broader loss of independence and the politicisation of the public service, whereby governments of both persuasions are now too willing to outsource policy development to consultants or (erroneously named) think tanks.

Add in the seemingly unbridled growth in the number of staffers and advisors in ministers’ offices, and the role of departments in policy formulation and advice has been badly diminished.

Sadly, the days of “frank and fearless advice” have disappeared in favour of spin and compromised analysis designed to support a pre-conceived political agenda.

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  1. Who are the key high profile Partners of lets say KPMG, Deloitte, PWc, EY? All on the Guvnt teet! Total blood suckers.
    These firms are “Government vampires”. They audit the banks (govt protected, big fees), they advise on Health (no-one in their Health divisions has ever worked in Health except in admin, big fees), they advise on Defence, pretty sure they are not armed forces (??), they audit Mining Companies (& advise alternately on restructures…. PWc this week, EY next week, KPMG can have the 3rd week etc etc.) Its a complete fraud. But its Australia, we do it so much better. (Note…exactly as in all Western).

    • GunnamattaMEMBER

      If you have much to do with the public service (and I do with the Commonwealth [not state] outfit) you can see it everywhere. It isnt just auditing..

      From IT – I watched in absolute amazement recently as some people I was dealing with in Defence [on Windows XP] ‘logged a job’ to get their outlook working properly with their IT help desk which was crashing every time one of them tried to place the documents they were working on, and the emails they were communicating with each other on into their storage system and explained that the system was crashing every time. The ‘help desk’ identified that after the system had crashed the email simply had to be restarted and that the objects they wanted in the storage system were actually stored there, and repeatedly sent ‘Job completed’ emails to the guy who had logged a job for the rest of the afternoon.

      to Call Centres – a lot of people calling HumanServices may not realise that many of the people they are talking to arent public servants but from Telstra and other Call Centre providers who dont know a thing about what they are told to say, and I have reliably been told that some of what they say (I cant go into details) contravenes what HumanServices lawyers think is legal, and that the HumanServices people who know about it are all signed up to non disclosure agreements.

      to audit – public servants need to be accountable, and decisions reviewable etc, but more than once I have come across a situation where you stroll into a workplace and see new people and ask ‘who are they’ and get told ‘they are the auditors’ and come back a few months later and see a new batch of people and get told ‘they are auditing the last people’ – and the numbers of people who are subjected to a market test, or direct outsource and then the people who were doing the job take a redundancy (most public servants get 2 years per year of service up to about a years worth of redundancy pay, but the bugger lure for many of them is that they get access to their superannuation systems – the old CSS and PSS – and then turn up for work a short time later doing much the same job for the outsourced provider, who invariably makes the contract far more expensive in the second generation and turns the original outsourcing cost saving into a net loss.

      to technical services (again largely a Defence thing, and particularly former military technical types) – as above. someone outsources the function – be it technical development, maintenance, but even extending to driving and transport functions and then of course to the flight booking and hotels and accommodation providing these systems and processes get inserted into organisations which involve ticket clipping from go to woe, with the benefit of any doubt or anything out of the ordinary or any change in something booked invariably going into the pocket of the service provider

      to property and facilities – across the board the Ministers and Eexecutives ditch an owned buildling which had a maintenance and lease something, and the moment the facility need a change the tenant (some form of agency) gets taken to the cleaners

      to training – man oh man some of the courses these guys get put on (and even made compulsory) is staggeringly weird and on occasion completely useless in the actual workplace and HR Management systems, gimmicks, performance management fads, recruitment services etc . Many Departments and Agencies buy these HR systems and get taken to the cleaners in the scoping, or buy ‘cultural change’ courses or ‘engagement’ techniques which involve bombarding their own people with questionnaires by email in such volumes their own staff simply delete.

      and thats beefore you get to the strange fact that the highest margin medical facilities (imaging, pathology etc) are those right near the largest ADF concentrations – Singleton, Cerberus, Kapooka etc) and that Defence has carried out its own surveys showing that when these ADF guys rock up they get more tests and more expensive items from the Medicare schedule (so the provider gets to work over the taxpayer/Medicare using ADF types, and that the best security contracts end up with parking companies and lead to pretty much useless and untrained security types looking at passes whenever you visit a site.

      and on and on and on – the number of private sector funds extraction agents (companies) bolted onto our public services is simply staggering.

      Like I would not say the public service is perfect, but you know every time the consultant is only concerned about moolah going into the consultants pocket, and once you start taking a look around the number of places in the public sector where you can see the ‘nice little earner’ inserted under the guise of ‘private sector efficiency’ is simply insane.

      • Its one of the best forms of wealth redistribution there is.

        Why should roads, bridges and tradies be the only ones to benefit from laying down new red asphalt from Melbourne to Colac on the verges, then rip it up and make it green ?

        I would just prefer to see it go to Australian companies.

      • GunnamattaMEMBER

        all too often its a fucking joke when people in the organisation just want to do their job properly

      • Well all the defence force personnel have Medicare numbers so why not head up to the local Douglass Hanly Moir or local bulk billing radiology provider and sit in the waiting room like everybody else? Margin problem solved! Next.

      • WTF! Defence are still running XP!!! That is a massive security hole. Suppose they’ll be surprised when all their secrets end up in Beijing but we’ll be told how they were world class, best in the world etc. But suppose paying for all those expensive consultants means savings have to be made.

      • GunnamattaMEMBER

        I kid you not Zulu it was windows XP. These guys were civilian on the outskirts of Melbourne. I know the actual military are using up to date stuff. The civilians were using Word and Excel 2003 version.

        Andrew. Thats what can happen but Defence has already identified that their people invariably get sent off for more tests and more expensive options all round to milk those taxpayers some more

      • APS mates have said in the past they’ve seen senior managers not trust the information provided by their staff so engage a contractor who “consults” said staff, repackages their advice into a report based on weight rather than substance and presto; senior management are thrilled with the outcome even thought it was the same one their staff provided. They’ve also seen consultants provide vague advice dressed up in overbearing powerpoint presentations. When pressed to explain what they mean, well, you have to pay for that. The other good use for contractors is a scape goat – “I only did what the conteactor recommended”. If you want to look at scam, “service providers” is another bucket of money being fleeced by consulting and contracting firms.

  2. Is this why AUS collects hardly any rent from LNG exports?

    In 2002 I heard that Saudi Arabia puts a simple export tax on oil.

    I have no idea what Qatar and Norway do to collect so much rent from the exportation of hydrocarbons.

    Oddly enough, I read that India also tries to tax the profits from LNG extraction – just like AUS – and fails miserably due to profit shifting or tax avoidance.

    A simple export tax makes perfect sense to me and is so much better than collecting hardly any rent. Plus it would give a leg up to local glass factories.

  3. I honestly don’t think you understand how a lot of this works. I agree we need more Australian firms, or NON AMERICAN, but these firms are not in there delivering projects or running things – its just not how it works. I understand people on this blog have had experience internally in the public sector many years ago – in a very isolated environment – but the practice differs WILDLY across teams, departments, sectors.

    My partner is in an AUSTRALIAN CONSULTING firm, thank goodness and they spend a huge amount of time with departments.

    For example the ministers may enact new legislation which needs to be implemented – how the new legislation is delivered, coordinated and then actually managed and run might be planned by a specialist group. Change management which is generally what is happening – is then brought into the department, the system is put in place, and then new people are actively hired to be permanent staff to run it – and the consulting group leaves.

    This is also how its done with SYSTEMS IMPLEMENTATION which is the second most common use of consultants apart from CHANGE MANAGEMENT.

    The real issue I have is with project deliverables ESPECIALLY IN INFORMATION TECHNOLOGY being run entirely by external consultants like IBM on the CENSUS and ACENTURE via FJORD which is delivering centre link and ATO stuff.

    These guys are an ABSOLUTE DISGRACE.

    Accenture needs to be removed as soon as possible. Truly terrible.

    • The sort of outsourced work you describe is exactly what the public service used to perform and still should. Surely there’s enough people and expertise among 243,000 of them to carry out policy implementation, change management and other routine duties.
      In fact, your comments support Leith’s contentions completely. (Suspect your partner doesn’t work for Accenture but her mob should get a bigger slice of the slops?)

  4. This is nothing more than proof that the government supports Australians, who are mums and dads, by paying them a market rate for work, using the taxes paid by other mums and dads, giving them the income they need to get ahead by investing in property and spending money in Australia, to support other mums and dads.

    We’re open for business, y’know.

  5. I don’t understand the problem, who is better equipped to hover-up all that lazy money then the dissidents of those respectable honest Chartered Accountants of yore? The life blood of great companies like Arthur Anderson still flows through the veins of the Big 4, so I can’t help but think they’ve earned the right to tap that pubic purse. They’re the ones who did the hard yards inventing and perfecting the tax structures we’ve all learned to love. Think about it, who better to advise governments especially wrt tax policy then those select few who also advise industry. In business circles we call that synergy. The synergistic workings of Industry and Government is at the heart of all great democracies.
    Personally I for one can’t live without my transfer pricing, I can live without my morning covfefe but not without my transfer pricing.

  6. St JacquesMEMBER

    This is off topic but this is a must read:
    “Narratives are not truths” Bugger you Kunstler, I was thinking exactly the same thing only a few weeks ago!

    edit: Incidentally, his main point is kind of apposite the concerns of this article, as consultants are hired to provide the justification for their employers’ narrative.

    • “… consultants are hired to provide the justification for their employers’ narrative.”

      The sweetest little summary of the issue that I’ve ever seen.

  7. I have never seen a management consultant’s report in my long life that didn’t end with the following paragraph:
    What this situation really needs is more management consulting.” Never once. I always turn to the last page. Of course Berkshire doesn’t hire them, so I only do this on sort of a voyeuristic basis. Sometimes I’m at a non-profit where some idiot hires one. [Laughter]
    — Charlie Munger, On the Psychology of Human Misjudgment:
    Youtube video [1h 15min], transcript

    Everyone should watch the video, we can all learn a lot from his wisdom…

    • Jake GittesMEMBER

      Of course the ‘ you need more consulting’ is baked into the business model. FUD is the best means to make the projects run longer and overlap. Its like big pharma which medicalise conditions to encourage demand and get people to ask for medication.

      Some consultants in Canberra are used to sort out political turf wars. This is quite common and the additional wastage across the bureaucracy between senior public servants, who act like gangsters fighting over street corners to deal drugs, should be added to the consultants gross fees.

  8. Consultants get some money from the government, so do lawyers. How about those massive doctor wages? Think there’s no link to medicare/government there? Teachers? Let’s be honest this is the world we live in. If consultants provide good advice, they deserve their salary as much as the next person!

  9. “They can claim that a given policy is based on “independent advice”, even though the results are often pre-determined and effectively purchased.”

    The vast bulk of this spend is not on policy advice. It’s on IT, payroll and purchasing systems and the like.

  10. casewithscience

    Unfortunately, when I need to get an independent audit on my 2.3b statutory body, I can’t go to H&R Block.

  11. drsmithyMEMBER

    Consultants are used primarily because it aligns with the market religion: private firms are more efficient.

    Same religion that’s underpinned the deskilling of the public service for the last thirty-odd years.

    • Sad, but a very true observation about the delusion that ‘private’ is always appropriate.

  12. Cue the ‘intelligentsia’ crawling out of the woodwork to blame the private sector parasites ….

    In short: the tax-payer gets to pay handsome salaries to bureaucrats who are ultimately incapable of doing the job they were hired to do. Discovering they are totally out of their depth, said bureaucrats hire private sector guns who gouge them blind and even more tax-payer cash gets torched.

    The result? Lefties incensed and mystified at why the private sector swarms around a crew of idiots in charge of a gargantuan slush fund.

    • drsmithyMEMBER

      The result? Lefties incensed and mystified at why the private sector swarms around a crew of idiots in charge of a gargantuan slush fund.

      “Lefties” are less incensed about the completely predictable swarm of private-sector parasites suckling at the public teat, and more incensed at the gutting of the public service at the behest of people like you that produces it.

      I like the way you first scoff at any suggestion it’s the private sector’s fault, then a few sentences later admit it is the private sector’s fault, but not really because they’re only doing what the Government lets them.

    • GunnamattaMEMBER

      In short: the tax-payer gets to pay handsome salaries to bureaucrats who are ultimately incapable of doing the job they were hired to do. Discovering they are totally out of their depth, said bureaucrats hire private sector guns who gouge them blind and even more tax-payer cash gets torched.

      For sure the public sector does this. But just as for sure the decisions to outsource and generally fuck up the management of the public sector tend to be those of politicians – particularly market ideologues. And a lot of those handsome salaries are paid to bureaucrats who a short time ago have been bought into the public service by a minister or batch of ideologues solely on the basis they will do and say as the Minister tells them, and not listen one iota to the underlings labouring away (with lesser or greater degrees of intensity) beneath them.

      The inability to manage (easy throw away line that it is) is usually an inability to reconcile the world as ideologues want to see it with the world as those who are trying to make it work see it.

      • Gunna, I won’t argue with the viewpoint that certain politicians are enamoured of the free-market, along with whatever the prevailing ‘thought-leaders’ are suggesting is the answer to everything, but frankly, the free market and the public sector are incompatible so it is a fool’s errand.
        My main beef is with the fact many people commenting on this thread think this is an example of ‘free-market failure’ when it is nothing of the sort. The private sector is in the business of making money and the lowest hanging fruit will always be the most attractive. Government has a tendency to provide the lowest hanging fruit because a) they are not driven by the profit motive b) they are somewhat price insensitive owing to the bottomless pit that is the taxpayer slush fund and c) they are somewhat naive when it comes to the business of procurement.

        The aforementioned commenters not only make the free-market failure mistake, they also think that the private sector companies somehow have a higher moral obligation than normal when dealing with the public sector. Can the private sector really be blamed for public sector incompetence or naivety?

      • GunnamattaMEMBER

        On the one hand I agree with much that you say there……..

        The private sector is in the business of making money and the lowest hanging fruit will always be the most attractive. Government has a tendency to provide the lowest hanging fruit because a) they are not driven by the profit motive b) they are somewhat price insensitive owing to the bottomless pit that is the taxpayer slush fund and c) they are somewhat naive when it comes to the business of procurement.

        On the other, these services and contracts for provision thereof are invariably offered up under the belief and regular exhortation (by politicians and a load of senior executive types) that the net outcome will be better public services.

        these words

        The private sector is in the business of making money and the lowest hanging fruit will always be the most attractive.

        …..should be at the top of the page of every last request for quotation, contract scoping activity, service delivery agreement, and contract.

        Bolting private sector profit extraction vehicles to public services (which i wouldnt argue for a second can often be less than acceptable in their own right – for a variety of reasons) has not yet resulted in better public services anywhere as far as I can make out – and I spent a long time outsourcing them under the (yes naive) view that it would result in better public outcomes – and this would presumably explain why the National Audit Office has more than once been stamped on when it has proposed looking at the longer term net benefits of the public sector outsourcing regime (VR costs and second and third round contracts and all) in play since the late 90s.

      • Best keep in mind, Gunna, you’re talking to someone who doesn’t think there should BE public services, of any kind (with the possible exceptions of the police and army, though I’ve talked to plenty of loony Libertarians who think those should be privatised as well).

  13. No accountability is where it starts … if responsibility for decisions and policies cannot be abrogated, they are not implemented at all..