New evidence shows the consulting giant had a major government contract cancelled after also giving advice to one of the bidders. By Karen Middleton.

Deloitte breached undertaking on Home Affairs advice

Greens senator Barbara Pocock at Parliament House on Tuesday.
Greens senator Barbara Pocock at Parliament House on Tuesday.
Credit: AAP Image / Mick Tsikas

Consulting giant Deloitte is downplaying its early access to inside information from the Department of Home Affairs about the tender process for a major contract in which it advised both the department and one of the bidders, in breach of a written undertaking.

The Saturday Paper understands that nobody in the partnership was disciplined over the incident, although its $1.5 million advisory contract with Home Affairs was terminated in 2021 over an undisclosed conflict of interest. The conflict arose after one of its employees was given advance details of the departmental tender.

Deloitte is also investigating the reported misuse by one of its former partners of information from Defence, acquired while he was working on Defence contracts. It told The Saturday Paper it had alerted Defence to the alleged misuse, reported in Nine newspapers on Thursday, and was demanding the former partner return all Deloitte information.

The Home Affairs issue came to light in an Australian National Audit Office (ANAO) report on the Home Affairs contract process, published last month. It revealed Home Affairs had terminated Deloitte’s contract in May 2021, after it was found to have an irreconcilable conflict of interest. The termination occurred because Deloitte had received early advice that the tender was coming and then signed a contract to become the department’s commercial adviser on the tender, while a seconded senior partner was advising one of the tenderers.

This week, four Deloitte executives gave evidence to a senate inquiry examining the role and influence of consultants in the public sector, but were not asked about the Home Affairs incident.

“This matter involving Home Affairs related to an undisclosed organisational conflict and did not involve any mishandling, communication or misuse of government information,” Deloitte said in a written response to questions from The Saturday Paper, lodged after the executives’ appearance at the inquiry.

“As noted in the ANAO report, Home Affairs conducted its own review and formed the view that there was an arrangement that was a conflict of interest that should have been disclosed. However, the ANAO report also noted that ‘the department was satisfied with the integrity and probity of the conduct of the procurement process, including the evaluation of tenders’.”

The ANAO’s remit is to scrutinise and make findings on the actions and activities of government-owned entities. It can examine private organisations’ engagement with public-sector bodies but does not make its own findings about private entities. Although the auditor’s examination found the outcome of the tender process was not compromised, it criticised aspects of how Home Affairs managed it.

In relation to Deloitte, the ANAO detailed the department’s probity advice, which it did not criticise. The advice was that Deloitte could be seen to have had “an unfair advantage” because it had received “early access to inside information” and that this would create a conflict if Deloitte was involved as or with a tenderer. The ANAO noted that when a Deloitte partner was found subsequently to have advised another tenderer without declaring a conflict of interest – in breach of Deloitte’s probity plan as a commercial adviser – the firm’s contract was terminated.

The Saturday Paper put it to Deloitte that it was overlooking the fact the ANAO’s finding was limited to how the department had handled it. The ANAO made no finding – because it cannot – about the appropriateness of Deloitte receiving advance notice of the systems procurement and contemplating making its own bid, then allowing a partner to advise another bidder, while also serving as an adviser – a conflict expressly forbidden by the agreement it had signed.

Deloitte’s spokesperson responded that it had nothing to add.

The exchange followed two days of hearings on public sector use of consultants by the senate finance and public administration references committee. The inquiry was established after it emerged that consulting giant PwC had misused government information it received during consultations ahead of a 2015 crackdown on multinational tax avoidance. The information was used to solicit and advise global corporate clients on ways around the laws.

Eight partners, including chief executive Tom Seymour, have since left or been removed and PwC has sold off its government practice for $1 to private equity firm Allegro Funds. It has also announced it will no longer make political party donations.

The admission about misusing information sparked an Australian Federal Police investigation, which is ongoing. It has also prompted extra parliamentary scrutiny of government agencies’ interactions with PwC and their engagement of consultants more broadly, especially the so-called Big Four: PwC, Deloitte, Ernst & Young (EY) and KPMG.

On Monday, former PwC employee Tracey Murray told the inquiry about what she said was a culture at the firm that made high-earning partners “almost bulletproof”. She described partners undercutting each other, in an environment where access to government officials was currency and profit ruled.

In a written response provided to The Saturday Paper, a PwC spokesperson highlighted the firm’s actions after acknowledging that information had been misused and noted that Murray’s experience within the firm was historical.

“It is a relevant point that Ms Murray has not been employed at the firm since 2005 – that’s nearly two decades,” the spokesperson said.

Murray now works for a smaller professional services firm.

During her evidence, she described an incident at PwC in which she had challenged a partner who had produced what she alleged was substandard work for a client, without referring it to the firm’s expert area, in which she worked. She said it was common for some partners to produce work for clients on subjects in which they were not expert, in order to receive the fees on their own ledgers rather than have to hand them on to specialists. When she raised this with a partner she said he had told her to “fuck off”.

On Monday, Senator Deborah O’Neill asked Murray if she would name the partner. She initially declined but when O’Neill began suggesting names, forcing Murray to rule them out, she eventually acquiesced. “I am for sure going to get into trouble for this,” she said.

On Wednesday, Murray told The Saturday Paper one of her clients had terminated its longstanding contract as a result of her evidence to the inquiry, prioritising a separate relationship with PwC.

“I understand the position that the client was in,” Murray says. “I wouldn’t change what I did.”

In her committee testimony, Murray rejected the suggestion that knowledge of the 2015 tax workaround scheme could have been restricted to just a few individuals within PwC.

She said the chief financial officers of clients and prospective clients who were being told they must pay PwC to restructure their businesses on the basis of legislation that did not yet exist – but that they were being assured was coming – were going to want to know the source and substance of that advice. Before they were even approached, others within PwC were going to demand the same.

“You’re talking about very, very smart CFOs and tax managers of large businesses here,” Murray told senators on Monday. “They’re going to want to have some form of pretty watertight assurance. [What] if I completely restructure part of the business and spend half a million dollars with you, and it’s not in the legislation? Where did this come from and what assurances have I got? That question would have been asked by multiple people – and not just the client.”

Senators on the inquiry committee have expressed alarm that cosy relationships between global professional services firms and government officials are leading to potentially inflated contracts and a lack of probity and transparency – to the ultimate detriment of policy, accountability and the public purse. They have highlighted what they say is a revolving door between the private consultancy firms and the upper ranks of the public service, as part of a “land-and-expand” strategy, used commonly to build networks and gain preferred access to government figures, information and, ultimately, government work.

This week, the committee heard from executives at EY and Deloitte, as well as from another professional services company, Accenture. They also heard from former Australian Competition and Consumer Commission chief Professor Allan Fels, who said the Big Four should be broken up.

EY executives sought to distance their firm from PwC’s behaviour, which they called “deeply disturbing and disappointing”. However, senators challenged their claim of difference when EY Oceania chief executive David Larocca refused to provide details of partners’ earnings. When the senators pointed out PwC had been more forthcoming, Larocca eventually revealed only his own remuneration for last year – $2.8 million.

He insisted that publishing more would disadvantage his firm. “I’m not comfortable with our competitors having the information you’re asking us to disclose,” he said.

Deloitte executives faced similar condemnation for refusing to provide detailed earnings information, with chief executive Adam Powick eventually indicating Deloitte partners’ average annual base salary was between $500,000 and $600,000. Deb O’Neill asked Powick about reports he earned $3.5 million.

“Are you really worth seven times the salary of the Australian prime minister?” the Labor senator asked.

“No,” Powick replied.

In written responses to earlier committee questions, provided before this week’s hearings, Deloitte outlined incidents of misconduct over the past five years. It nominated the Home Affairs issue as one of only two conflict of interest incidents. It said the other one, in 2022, occurred when Deloitte was engaged to provide an assurance service for an unnamed government entity while also being its contracted auditor – and that it had done so without seeking ANAO approval. It said the auditors had concluded it “did not represent an independence threat”. Deloitte covered off the separate Home Affairs incident by simply noting the June ANAO report.

“The nature and consequences of the conflict of interest matter are outlined in the report,” was all it said. Asked for details of any incidents that had prompted disciplinary action since 2018, it cited two – neither of which were the one involving Home Affairs.

Deloitte revealed that in financial year 2021-22, it had dealt with 78 substantiated misconduct allegations, eight related to partners and two resulting in partners’ “exit” from the firm. None of those matters had involved the misuse of government information but one had involved a conflict of interest.

Last financial year, there had been 121 substantiated matters, of which 13 related to partners, leading to four partners departing. One matter involved misusing government information.

When Greens senator Barbara Pocock asked for details during the committee hearing this week, the Deloitte executives refused to name the agency involved.

“I’m going to insist that you give us the name of the department,” Pocock told Deloitte’s chief risk officer and partner Sneza Pelusi.

“We’re not sure if that’s appropriate at this point,” Pelusi replied.

The committee chairman, Liberal senator Richard Colbeck, intervened and allowed the question to be taken on notice.

Two days later, The Saturday Paper asked Deloitte if it would provide the name.

“We are not in a position to disclose the government department involved in this matter,” the company said in a statement.

It said a team member had “incorrectly handled and shared a document outside agreed protocols with another member of the team for work purposes”. The information went no further, the incident was detected and reported to the client within 48 hours, and an investigation resulted in disciplinary action and the employee’s removal from the project.

Deloitte said it was a separate matter from the 2020-21 Home Affairs issue and was unrelated.

The 2020 Home Affairs tender process was for the design and installation of a computer system that could process visas, citizenship applications, customs functions and personnel security clearances. The government wanted the system operating by the time Australia reopened its borders, closed due to the Covid-19 pandemic.

The winning bid, by Accenture, was valued at $110 million but others on the shortlist ranged up to $650 million. The contract was ultimately cancelled by agreement when Accenture was unable to deliver what was promised and the project was abandoned in 2022.

The department hired five companies to assist on aspects of the tender process, including Deloitte as commercial advisers.

Initially set at $151,800, the value of the Deloitte advisory contract increased by 902 per cent over the course of a year and the ANAO reported it was eventually worth $1.52 million before it was cancelled.

The audit office revealed how and why that cancellation came about. A Home Affairs official had met with a Deloitte employee on September 3, 2020, after indicating they wanted to “catch up regarding the urgent need for commercial advisory services for an upcoming tender”. No record was kept of the meeting. The Deloitte employee then referred the official to two other employees experienced in information and communications technology. Deloitte was selected as the commercial adviser.

Two weeks after that initial meeting, and before the contract was signed, the two Deloitte specialists attended a departmental probity briefing about the tender process. The ANAO said their conflict of interest declarations indicated Deloitte might seek to bid itself, alongside the commercial advisory role.

Their suggestion prompted the department to seek probity advice on the risks of engaging Deloitte as commercial adviser if the firm also wanted to submit a bid.

“The advice highlighted the probity risks with this approach,” the ANAO reported, “including that there may be a perception or actual unfair advantage because of Deloitte’s early access to inside information about key aspects of the procurement process (such as the statement of requirements), the potential for complaints from other tenderers and Deloitte personnel having a ‘perceived (at least)’ conflict of interest.”

Deloitte signed an agreement not to be involved in any bid. Months later, however, one of the tenderers notified the department that a Deloitte senior partner had been advising it. The department investigated and Deloitte’s contract was terminated.

This week, Senator Barbara Pocock told The Saturday Paper she found it “astounding” that Deloitte was insisting it had not taken advantage of early access to government information.

“During the course of our inquiry, it has become clear to me that the Big Four consulting firms don’t understand that these cosy relationships and the trading of information is totally inappropriate and amounts to unfair advantage,” Pocock said. “For them it’s just the normal way of doing business, by getting the best advantage for themselves without any regard to the moral or ethical or sometimes even legal implications.”

Deloitte chairman Tom Imbesi told the senate inquiry trust and integrity were “fundamental to Deloitte’s brand and reputation”.

“It’s important to our clients and equally our people who demand to work for an ethical organisation,” Imbesi said. “This is core to our licence to operate. We strive for the highest professional and ethical standards and we have a set of rigorous protocols, practices and safeguards in place to mitigate conflicts of interest and manage confidentiality.”

When issues arose, he said, the firm addressed them “decisively” and took “appropriate action, including exiting partners”.

“We recognise conduct and culture begins with setting the right tone from the top.”

In its committee evidence, Deloitte advocated for stronger regulatory oversight of the professional services sector, a government review of procurement policies to ensure greater clarity and accountability on value for money, and powers to penalise tenderers who fall short. It also suggested an overhaul of confidentiality requirements for anyone working with government and an annual ANAO review of professional services organisations’ systems.

In light of evidence to the committee, Prime Minister Anthony Albanese was asked about the influence of consultants on the public service.

Albanese revealed he had hosted the secretaries of all public service departments at a dinner at The Lodge on Monday night and the subject had come up.

“They are all conscious about it,” Albanese told Radio 2GB on Wednesday. He said evidence to the robo-debt royal commission had highlighted the problematic relationship that had developed under the previous government between ministers and the public service.

“We need to be able to have a capacity to ask the public service for advice and to get it direct from the public service,” he said. “There has been a culture developed where any question gets referred off to one of these consultants and we need to do better.”

Albanese criticised what had become the common practice of senior bureaucrats being lured away to consultancies and then hired back to government to give the same advice on much higher salaries.

“Public service is an honourable profession,” Albanese said. “We need to honour it. We need to enrich it and we need to make sure that government can get the right advice.”

He was expected to reinforce those comments in a speech to the ACT Labor Party conference on Saturday, July 22, suggesting “private consultants are no substitute for public servants”.

He has not indicated what practical steps will underpin his pledge to wind back the use of consultants.

The senate committee is expected to provide some ideas.

This article was first published in the print edition of The Saturday Paper on July 22, 2023 as "Deloitte breached undertaking on Home Affairs advice".

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