Today in Parliament, Abigail delivered a speech highlighting key takeaways from the inquiry on the NSW Government's egregious mismanagement and excessive dependence on consulting firms.
Abigail said:
I take note of the Public Accountability and Works Committee's report into the New South Wales Government's use and management of consulting services. It is the committee's third report but the first that it commenced in this parliamentary term. Almost 18 months ago, the then New South Wales Auditor-General, Margaret Crawford, released her report entitled NSW government agencies' use of consultants. The report was scathing, concluding that government agencies do not procure and manage consultants effectively. Further, the report found that consultants were not being used strategically and that there were insufficient systems to manage or evaluate consultant performance. The Auditor-General's report found numerous examples of noncompliance with procurement rules, particularly regarding procurement thresholds.
One of the more notable findings of the Auditor-General's report was that the big four consulting firms, namely PwC, KPMG, EY and Deloitte, accounted for around one-quarter of all consultancy expenditure by New South Wales government agencies in the five years to financial year 2021-22. It was found that that concentration increases strategic risks, including an over-reliance on a limited number of providers and a potential reduction in the independence of advice. That was a particularly important finding in light of the unfolding scandal involving PwC's tax work for the Federal Government and the resulting Federal inquiries that were sparked by that scandal.
I clearly recall the morning that the Auditor-General's report was released. My team and I immediately put out a media release vowing to conduct an inquiry into the Government's misuse of and over‑reliance on consultants. As chair of the newly formed Public Accountability and Works Committee, I was pleased to be able to do just that when the current Parliament was formed last year. I note that it was not the first of the Auditor‑General's reports to have highlighted concerns with the Government's use of consultants, and my team and I relied heavily on each of them throughout the inquiry. I take the opportunity to once again thank the Audit Office, particularly former Auditor-General Margaret Crawford, for the work it has done in shining much‑needed light into the dark corners of New South Wales bureaucracy.
The committee received 28 submissions, held 10 days of hearings and heard from 95 witnesses. It had the opportunity to question all of the big consulting firms and a wide range of government departments and agencies, as well as a number of unions, academics, think tanks and many others. I thank all participants for taking the time to give evidence to the inquiry and to help inform the committee as it traversed a wide range of issues. I particularly thank those who gave evidence about their personal and often harrowing experiences working in consulting firms. What the committee learnt from the inquiry was fascinating and, at times, shocking, and it sparked considerable interest from the media and the public. The committee heard stories of brazen conflicts of interest; of revolving doors between consulting firms, government agencies and political parties; and of cosy relationships with key decision‑makers. Vitally, the committee also received evidence on how to unpick the insidious ways in which the big consulting firms had infiltrated government agencies and our democratic processes, and how to most effectively bolster the public sector to reduce its reliance on consulting firms.
I cannot possibly hope to adequately summarise the report in a short contribution. I encourage people to read the report—it is a cracker—but I highlight a few of the key findings and recommendations. The Auditor‑General's report alerted the committee to the difficulties that the Government, as a whole, had in accurately recording consultant expenditure and the disconnect between the main invoicing system—which happens to be designed and operated by PwC—and other government records. The result was that no-one was able to actually give the committee a dollar figure of exactly how much the New South Wales Government is spending on consultants. As the Auditor-General noted, there is no single data source that accurately captures spending on consultants. That is incredibly concerning from a transparency and accountability perspective. I am glad to hear that the situation is being rectified by the new Labor Government, but the fact that the Government was ever in a position where it could not tell us how much it was spending across agencies on consulting services is pretty concerning.
The New South Wales eTendering system proved to be a hugely fruitful source of information during the inquiry—not for actually revealing what tenders and contracts were being made by government agencies but for uncovering variation after variation, mistake after mistake, in what was being disclosed. All one needed to do was to compare what was disclosed through eTendering to what had been disclosed in an agency's annual report and they were almost guaranteed to find an error. The committee uncovered some extraordinary contract variations—far higher than those discovered in the Federal context—including a variation of 9,200 per cent in one case involving a contract that had been awarded by the State Insurance Regulatory Authority to EY.
The committee's report makes the finding that the eTendering system needs to be urgently overhauled to ensure timely, accessible and complete records of all government tenders, and that those records should be permanently available instead of disappearing after just three months, as has been the case up to now. Further, the report recommends that far greater detail be provided in the description of contracts, reasons for why there has been no tender process or a limited tender process, and reasons for all contract amendments or extensions. Again, I am glad to see that there are moves to address some of this by the New South Wales Labor Government, but it will need to go a lot further.
The committee started its inquiry by looking at the Ministry of Health because of red flags raised in the Auditor-General's 2023 report—in particular the inability at the time of the Auditor‑General to gather real data about the use of consultants at a local health district level. Through the inquiry, the committee obtained details about those local health districts' use of consultants that had not been provided to the Auditor‑General. It revealed millions of dollars being spent, primarily on the big four, with widespread breaches of procurement rules. When the committee began to inquire into the procurement processes of the New South Wales Government for consultants, it discovered a broken system with many opportunities for bad-faith actors to do the wrong thing and get away with it.
There was a procurement board making guidelines with no real enforcement powers and the board—itself comprising department heads—relied on attestation statements from department heads, including themselves. In other words, they were marking their own homework and not doing it at all well. The committee easily found examples of attestation statements that were wrong, that had never been questioned by the procurement board and for which there were no consequences for getting wrong. It has to be said that the Government's procurement processes were simply not serving the purpose for which they were designed. The report finds that the resulting frequent errors by agencies likely contributed to higher expenditure from public resources than necessary, which in turn negatively impacts the public's trust in democratic institutions. Again, I am glad to see that the new Labor Government—including through the work of Dr Sarah Kaine and the procurement inquiry that she chairs—is taking the issue seriously and seeking to reform it. It beggars belief that government procurement processes were ever set up in this lax way in the first place.
Another of the issues that the committee was alerted to by the Auditor-General's March 2023 report was the lack of post-engagement reviews. Only three of the 82 consulting contracts selected for the report were found to have been reviewed, despite procurement guidelines requiring it. From the committee's investigations during the inquiry, that rate of failure to comply with the requirement was pretty standard. Accordingly, the committee's report recommends that the New South Wales Government strengthen the requirements for agencies to conduct post-engagement evaluations to ensure that they are viewed as a compulsory component of substantial engagements of consultants, and that a report on those outcomes be provided to NSW Procurement, which should in turn report to the Parliament on work completed by consultants that has been found to not be of an appropriate standard.
A key finding of the report is that New South Wales government agencies and consulting services have developed a "tick and forget" culture when it comes to the management of conflicts of interest. There appeared to be a widespread misunderstanding amongst government agencies of what it means to have an actual—or, importantly, a perceived—conflict of interest, how that can impact on the veracity of a particular decision and how such actual or perceived conflicts of interest damage the public's trust in democratic processes. The ICAC's evidence regarding perceived conflicts of interest was particularly compelling. The committee recommended that the Government ensures those ICAC guidelines are followed closely by all government departments and agencies in the future.
A 2019 Auditor-General report into the governance of local health districts alerted the committee to many of the issues plaguing local health districts when it comes to conflicts of interest and other risks. That, in addition to the fact that those local health districts were not subject to the Auditor-General's oversight in the same way other government agencies were, was one of the reasons that the committee began its inquiry looking at health. The devolved health structure—where 15 separate local health districts have their own boards, responsibilities and obligations—and the problems that has caused could be the subject of an entire book. Maybe I will write it after I leave politics. Similar to the United Kingdom's health system, that devolved structure was designed and implemented by and has been primarily to the benefit of consultants. The revolving door between the health department, Ministers, senior staff, local health districts and the big four consulting firms is an extraordinary thing to behold. I am waiting with bated breath for the results of the Government's inquiry into the New South Wales health sector. The committee will be watching closely to see how it unpicks that structural mess.
To slow down that revolving door, the committee's report makes recommendations to ensure that senior public servants are prohibited from working for relevant private sector clients and consultants or their representative bodies within six months of leaving the public sector. We have also made recommendations to prevent current consultants, and those with a continuing financial interest in a consulting firm, from being appointed to a public sector board, or acting in informal roles such as mentoring roles for board members, without ministerial approval and disclosure in annual reports. There were too many conflict‑of‑interest stories to regale members with today, so I ask members to read the report. One highlight was when we discovered that EY was walking on both sides of the street when it came to working on theFuture of Gas Statement for the New South Wales Government—a document favourable to the interests of Santos—while also being Santos' auditor. EY did not even disclose it as a conflict of interest because it had unilaterally decided there was none.
One of the key recommendations in our report is that the New South Wales Government disclose where consultancies have been used, the amount they were paid and what conflicts of interest were disclosed in all government reports or other work prepared using consultants. We also recommend a range of other reforms to manage conflicts of interest, including that consultancies should not be relied on to determine whether or not a conflict exists. Importantly, our report makes a strong recommendation to prohibit a consulting service from providing consulting work to government in a sphere where it also acts as an auditor, has an ongoing client in the relevant area, or has worked in the previous 12 months, in any capacity, for a private sector client that could be affected by the results of the work being undertaken for the government. Our report finds that the overuse of and reliance on consultants and contractors by the New South Wales Government has occurred alongside a reduction in public sector skill and capacity and that, for the government to be effective in reducing spend on consultants and contractors, it will need to simultaneously bolster the public sector.
To that end, the report recommends that consultants and contractors engaged by government departments and agencies are only hired for the shortest possible time to undertake the required work and only as a last resort; that they are not involved in core government work—that is, work for which departments and agencies do not have their own in-house capacity or an immediate way of developing the skills and capacity consultants can bring; and that they are able to uplift the capability and skills of the public sector through the work that they undertake. Further, given the shocking numbers of consultants, contractors and labour hire workers working within government departments and agencies, and the risks to information security and the conflicts of interest that creates, our report recommends that those people be clearly identified as such by email systems, business cards, name badges, security passes and staff directories when working within government agencies, and that they are not involved in the recruitment process for other consultants and contractors, as we so often found to be the case. We also recommend that future contracts with consulting firms, where appropriate, include a requirement that the government department or agency be trained in the relevant knowledge, skills or expertise needed to complete the project, as part of that engagement.
To complete the picture of how we should now be working to bolster our public sector and untangle the grip of consultants, our report recommends that the Government conduct a skills audit of the public sector to determine what skills could be shared amongst departments and agencies; that we investigate setting up an in‑house speciality consulting team, similar to what the Federal Government is doing; and that, in the interim, we allocate to an appropriate department the preparation of business cases across the public sector, which is one area in which the cost of consultants has become eye-watering. Finally, one of my favourite recommendations from this inquiry is that we do it all again. We have recommended that a similar inquiry occur once every parliamentary term.
In the time available, I have barely scraped the surface of the full context of this report and all its findings and recommendations. I end by sincerely thanking the other committee members for their attendance and engagement with this inquiry, particularly the Hon. Dr Sarah Kaine. I thank the committee secretariat, the Hansard team and all of the other parliamentary staff who work so diligently behind the scenes of our committee work. Finally, I give a very special thanks to my senior adviser, Angus Hoy, who has eclipsed himself to reach new levels of diligence and creativity in digging up dirt on the consulting firms and working with me to prepare for each step of the inquiry. I look forward to seeing what the Government does in response to this report and its findings. We will be watching very closely and following up at every opportunity.