The Australian Federal Police is defending its management of conflicts of interest after confirming that multinational consulting firm PwC, which it is investigating for possible criminal misuse of confidential government information, is also its contracted internal auditor.

The AFP faced questions over the depth of its relationship with PwC this week as the Finance Department revealed it was taking steps that may restrict PwC’s future access to contracts and could also affect what it confirmed is $255.2 million in existing contracts the company holds with federal departments and agencies.

Greens senator David Shoebridge suggested the AFP’s professional relationship with PwC could not be reconciled with the investigation.

“There is an irremediable conflict of interest between having PwC as your auditor at the same time as you’re seeking to properly investigate them,” Shoebridge said.

AFP commissioner Reece Kershaw insisted the two could be managed.

“We’re very good at compartmentalising criminal investigations and in particular the team that will be on this will be from our sensitive investigations area,” Kershaw responded. “There will be no problematic intersection. So I have the utmost confidence we’ll be searching for the evidence, the truth, and we’ll follow the proper processes in relation to criminal investigations, and we have to respect that as well.”

In response to Shoebridge’s further questions, the AFP also revealed one of its nine contracts with PwC – for a review of policing in the ACT – had gone to former New South Wales police commissioner Mick Fuller, now a partner at PwC, whom Kershaw has described as “a friend”. Kershaw said he had not disclosed the relationship as a potential conflict.

Treasury secretary Dr Steven Kennedy announced late on Wednesday that he had referred PwC’s head of international tax, Peter Collins, to police, alleging Collins “improperly used confidential Commonwealth information” in preparing tax plans for multinational companies.

AFP deputy commissioner Ian McCartney confirmed to a senate estimates hearing on Thursday that police were now investigating an “alleged unauthorised use or disclosure of protected information” in breach of the Crimes Act.

McCartney said the offences being investigated related to disclosure of information by a Commonwealth officer – which The Saturday Paper understands covers anyone who has signed a non-disclosure agreement to access privileged commonwealth information – and disclosure of official secrets.

PwC issued a statement saying the company would fully co-operate with any police investigation.

“We deeply regret that we have failed the high standards we set for ourselves as an organisation,” PwC said. “We now need to re-earn trust, which is why we have taken appropriate action, including announcing an independent review of the firm’s governance, accountability and culture. We will not hesitate to take further actions.”

It said it had complied with the Finance Department’s request to remove all personnel involved in – or who knew about – the confidentiality breach from existing and future contracts, at least until its review was complete.

Peter Collins’s activities relate to information he received during consultations with government ahead of a 2015 change to tax law aimed at multinational tax avoidance. The use of this information to help clients avoid the laws only came to light early this year when the Tax Practitioners Board suspended his licence for two years and rebuked PwC for using its privileged access to confidential government information to gain and service its corporate clients.

Questions from Labor senator Deborah O’Neill at a senate estimates hearing on February 15 elicited more details from the board, including that “20 to 30” people from PwC might have been involved. Responding on May 2 to a question taken on notice, the tax board produced and tabled more than 140 pages of internal PwC emails that revealed what is believed to be more than 50 company staff in offices around the world had been copied into discussions about leveraging the information. All names had been redacted, other than that of Peter Collins.

A week later, PwC chief executive Tom Seymour stood down after initially defending the company’s probity and later revealing he was copied into the correspondence.

Seymour’s acting replacement, Kristin Stubbins, and the PwC board have appointed former Telstra chief Dr Ziggy Switkowski to investigate what happened.

Finance Department secretary Jenny Wilkinson described as “insufficient” the PwC response given early this year when it was asked to explain. Wilkinson revealed the company had assured the department it had policies and procedures in place to maintain confidentiality without divulging that Collins was not the only one involved.

The May 2 emails revealed this and raised “serious concerns about the broader culture within PwC and undermined our confidence in their earlier engagements around this matter”.

“I consider PwC’s abuse of confidence and trust with the Treasury and PwC’s subsequent handling of this breach to be a very serious issue,” Wilkinson told the senate’s finance and public administration estimates hearing on Thursday.

But, she said, the government was not currently legally able to cancel PwC’s existing contracts on the basis of the alleged misuse of information.

“This breach of confidentiality did not relate to a contract entered into following a procurement process,” Wilkinson said. “Mr Collins received confidential information and documentation during the course of his participation in stakeholder consultations with Treasury, with those consultations subject to confidentiality agreements.”

As a result, the government has moved to insert new clauses into procurement rules and into the umbrella agreement it holds with 413 approved government suppliers – of whom PwC is one – to make an “adverse event” outside of a contract and an unsatisfactory supplier response grounds to cancel contracts.

Wilkinson has also issued a new advisory note to the wider public service, affirming that a supplier’s past unethical behaviour constituted grounds for exclusion from future contracts.

“What we are doing in a measured and considered way, mindful of other processes under way, is responding to a mess,” Finance Minister Katy Gallagher told the committee. “Essentially, a big problem that goes broader than specific matters but relates to reliance on contractors and consultants in the public service.”

In the legal and constitutional affairs estimates committee, the AFP also defended the steps it took after the PwC allegations emerged earlier this year. Chief operating officer Charlotte Tressler said the AFP had written to PwC and received assurances about confidentiality.

The Greens’ David Shoebridge responded: “Well, of course the tax office had confidentiality agreements, didn’t they, and they ended up not being worth the paper they’re written on.”

Commissioner Kershaw rejected Shoebridge’s suggestion that the AFP had not examined the contracts rigorously enough in light of the PwC revelations.

“We’re going through all of that right now,” Kershaw said. “And we have to be mindful as well of how we undertake that process and you wouldn’t want us to rush to that.”

Shoebridge replied he “absolutely would” want police to rush to get independent legal advice on what he said was an obvious conflict of interest.

Earlier on Thursday, Home Affairs Minister Clare O’Neil condemned the use of privileged access to confidential government information for corporate profit.

“We have relentless requests from business to engage with government in policy development and this is a grotesque betrayal of trust of the Australian government and of our citizens,” O’Neil told ABC radio’s AM program on Thursday.

“We will not stop until we get to the bottom of exactly what has happened here. It is a disgraceful incident and it must be properly investigated and the people responsible held to account.”

O’Neil emphasised that legal constraints made it difficult to ban PwC from government work.

“I can tell you there is some furious work going on within government to understand what the legal constraints are on us here to make sure that we are appropriately addressing the issues that have been raised. But we can’t break the law just because we’re the government.”

The information obtained through this week’s hearings reveals just how intertwined with government the consulting giant is, along with the other professional services firms that form part of what is known as “the Big Four” – Ernst & Young (EY), KPMG and Deloitte.

In the rural and regional affairs committee, Agriculture Department secretary Andrew Metcalfe confirmed that an Australian National Audit Office report found earlier this year that PwC staff had attempted to use information gained through one of 11 contracts with his department to leverage a new contract.

Metcalfe said he had been forced to hire consultants to meet the pandemic-related workload when the previous government had instructed him “to not employ more public servants”.

To manage the contractors, his department hired PwC as a “strategic partner” on its own $22.8 million contract, with another $17.4 million to act as a “delivery partner”.

Metcalfe explained PwC executives had attended some executive leadership meetings. An “unsolicited approach” was made and was dealt with in a “highly ethical” manner.

“We indicated that we were unhappy with that approach,” he said, adding it was “only ever a conversation” and no formal proposal was made. “But we actually took the opportunity to remind PwC of their obligations.”

On Thursday, Industrial Relations minister Tony Burke described the previous government’s arrangements as effectively “an entirely shadow public service that had been fully privatised”. He told the ABC the government was endeavouring to “bring that back in-house because the public service should be owned by the Australian people”.

Greens senator Barbara Pocock said she feared the PwC allegations may be “the tip of the iceberg”. The Greens have vowed to refer the matter to the new National Anti-Corruption Commission (NACC) when it begins operating in July.

Appearing before an estimates committee on Monday, Home Affairs Department secretary Mike Pezzullo effectively endorsed such a referral.

Greens senator Nick McKim asked Pezzullo how he could have confidence in PwC and award it contracts in future.

“Well, based on what I’ve read, I’m certainly not confident,” Pezzullo responded, saying he was concerned the government’s systems had not alerted Treasury or the Australian Taxation Office to PwC’s activities.

“If no red flags were being made apparent … then, as far as I’m concerned, the advent of the NACC could not have come too soon,” Pezzullo said. “We have to throw the anti-corruption net much more widely to get into the full supply chain of people who deal with the Commonwealth. And, if this is a salutary example, albeit from some years ago, as to why you need that broader anti-corruption framework, this is a good example.”

Pezzullo confirmed PwC had six current contracts with his department and their confidentiality agreements had been re-examined but no concerns identified. He said officials across government were scrutinising any dealing with potentially market-sensitive information that could be monetised.

Senator Deborah O’Neill said the PwC allegations had implications for all Australians. “Every single decision that is made about your money and mine that’s invested … relies on the truth-telling that assurance companies are supposed to provide about what’s going on in the market,” O’Neill said. “That is the reason they exist. They’ve morphed into octopus-like entities with up to a thousand partners and their hands in everything, seemingly caught in the cross-currents of incredible conflicts of interest.”

Senator Pocock welcomed the police investigation but said more action was required. “Now we need to know when Labor will commit to a ban on PwC contracts, support for a full investigation by the NACC and an end to political donations from big consultants,” she said. “We need to know the identities of everybody named in the redacted emails released through the senate and everyone who took part in the marketing of the tax avoidance schemes at PwC. There’s no way they should be allowed to continue in light of this disgraceful rip-off of Australian taxpayers.”

When Pocock pushed Katy Gallagher on the hundreds of millions of dollars that PwC and the other three major professional services companies make, the minister hit back.

“All donations are disclosed in accordance with the electoral laws and ministers, most appropriately, don’t have anything to do with procurement. None,” Gallagher said, adding: “You’re besmirching me. You’re basically saying because the Labor Party gets donations, that leads to this. If you’ve got a specific allegation, name it. I’m offended by it.”

Crossbench MPs also spoke with concern this week about the PwC revelations and the government’s promise to “do politics differently”.

Independent member for Curtin Kate Chaney is drafting a private member’s bill to ban political donations from companies that either have existing contracts with government or are bidding for contracts.

Chaney said she was concerned about the “cosy relationship” that sees government contractors donate to political parties.

Sydney-based independent MP Zali Steggall said the PwC revelations were “staggering”.

“I have grave concern that this is happening in other areas where government is outsourcing for advice,” Steggall said. She urged the government to “go hard on this” and set the precedent that such behaviour will not be accepted.

“I think what we saw at the last federal election is Australians are pulling back the curtain on what happens in this place,” Steggall said, criticising the major parties for allowing standards to slip. “The Australian people are alive and awake to that and they are expecting and demanding more. And so the responsibility falls on the government of the day, now the Albanese government, to be better, to do it differently. If not, the Australian people will judge them for it.”

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