The problems with consultants

Opinion

Hey there, time traveller!
This article was published 15/07/2023 (810 days ago), so information in it may no longer be current.

IT may have happened far away in Australia, but the scandal involving PriceWaterhouse Cooper (PwC) has national and provincial significance here in Canada. PwC is one of four major accounting firms operating worldwide, who all claim to be paragons of expertise, objectivity and integrity — which also means they should be trustworthy.

In the case of PwC Australia, however, there was a serious breach of trust. A PwC accounting partner working with the national government funnelled confidential plans for tax changes to the consulting side of the firm. Then the firm’s consultants used that information to attract business from multinational companies seeking to avoid new taxes.

PwC managed to cover up the misconduct for four years. Then the company was forced to apologize, nine partners were suspended, the government practice division (representing 20 per cent of its revenue) was sold for one dollar, and several investigations (by a Senate committee, the police and the accounting regulator) are underway.

This was not a case of a few bad apples. The company identified 76 employees with potential knowledge of inappropriate behaviour. Nor was this an isolated incident. In recent years, PwC has been entangled in controversies in Britain, Brazil and the United States.

The other three global accounting powerhouses — Deloitte, Ernst and Young, and KPMG — have all at different times been criticized for illegal or unethical auditing practices, including in Canada.

This is not an anti-consultant rant.

Accountants and management consultants can bring essential knowledge and skills to the design and implementation of government policies and programs. This is especially true in emergency situations when a requirement for widespread, speedy action may overwhelm the capacity of the public service.

I accept that the vast majority of consultants are well educated, talented professionals dedicated to delivering value to their clients. Incidents like the serious misconduct in Australia are rare.

However, there are still risks associated with extensive reliance on consultants. To ensue they maximize the benefits of consultants and minimize the costs, governments must be clear about their aims for outsourcing work normally done by the public service. Then they must ensure there is the capacity to monitor and to keep consultants in check.

A number of factors contribute to risks in this regard.

Governments, usually right-of-centre in orientation, have turned to consultants to drive austerity programs, often based on a belief in the superiority of private management approaches. Lack of sufficient in-house scrutiny capacity caused by downsizing of the public service can contribute to consultants abusing their trust relationships with governments. Often, the accounting side of firms perform as the advance guard drumming up business for their management consulting divisions.

In recent decades, there has been an explosion of auditing activity in the public sector, which now goes well beyond the traditional financial transaction audit into the effectiveness of government actions in various policy fields. This can push accountants into areas of inquiry beyond their disciplinary expertise.

Individual firms can become the preferred choice of particular governments leading to multiple contracts and cosy working relationships in which scrutiny is relaxed. Close relationships can lead to sole-source contracting and to automatic renewals when contracts end.

Competitive tendering for contracts is supposed to deliver quality support to governments at the lowest possible costs. This ideal can clash with the corporate goal of maximizing contracting activity and profits. In Australia, a PwC executive boasted in a secret email how use of privileged government information allowed the firm to land corporate clients in the U.S.A.

Greed on the part of individual consultants can cause breaches of trust.

The dangers of reliance on consultants in the relatively small government of Manitoba exists, but is not as great as elsewhere. Coming to power in 2016, the Pallister PC government immediately hired KPMG to conduct efficiency audits across government.

The subsequent downsizing of the public service resulted in diminished capacity to manage contract relationships.

The same firm was also hired to lead an ambitious project titled, The Health System Sustainability and Innovation Review. In this instance, KPMG appears to have exerted great influence over a controversial consolidation and contraction of the health-care system.

By 2019, the NDP opposition was charging the government with spending excessively on consultants. The figure they cited was $23 million over three years, enough they claimed to run a hospital for a year. To put this number in perspective, the total spending of the government was in the range of $17 billion annually.

Unfortunately, there is no separate reporting category for spending on consulting across government so it is impossible to know whether the Stefanson government has relied to the same extent on consultants.

The real issues associated with consultants are whether government is getting value for money, whether consultants are, in effect, inappropriately making public policy, and whether the risks of misconduct by preferred consultants have been minimized .

Paul G. Thomas is professor emeritus of political studies at the University of Manitoba.