An “over-reliance” on the same consultants in the New South Wales government, particularly those from the Big Four consulting houses, is creating risks for agencies, according to the state’s Auditor-General Margaret Crawford.
In an annual review of the internal controls and governance at the state’s largest 25 agencies, the Auditor-General found agencies were regularly using the same consultants to provide independent advice.
The audit, released late last year, said that the bulk of the agencies had used the same pool of consultants over the last three financials years, which cover the early stages of the pandemic, while a third were doing this before the pandemic.
“In reviewing agencies’ top three highest paid consultants for the last five years, 60 per cent of agencies have relied on the same consultant for at least three years, and 28 per cent have relied on the same consultant for at least four of those years,” the report said.
The audit also noted that “there is a significant reliance on the ‘Big Four’ professional services firms”, with consulting giants Deloitte, Ernst & Young, KPMG and PwC accounting for almost 30 per cent of spending on consultants between 2018 and 2022.
KPMG and E&Y are most entrenched across the 25 largest agencies, each securing nine per cent of the $672 million in consulting contracts between 2018 and 2022. PwC and Deloitte, meanwhile, held six per cent and five per cent of contracts over the last five years, respectively.
Spending on consultants has fluctuated over the last five years, climbing from around $95 million in 2018 to a peak of approximately $165 million in 2021, according to the audit. Last financial year, spending fell to $127 million.
The audit also found that 72 per cent of agency policies do not require that independent consultants be rotated from time-to-time, while 32 per cent don’t require consideration of probity or conflict of interest when selecting consultants.
It said that by becoming over-reliant on a single provider, agencies may “insufficiently canvass” advice from other perspectives, which could lead to advice that is biased or – in extreme circumstances – deliberately manipulated.
The audit has recommended that agencies improve the design of polices to consider both concerns in line with NSW Independent Commission Against Corruption advice, as well as review where multiple consultants are engaged on the same topic to “address the risk of opinion shopping”.
The Auditor-General is continuing to review the state government’s use of consultants as part of another performance audit, having initially uncovered concerns in the 2021 state finance audit, released in February 2022.
A parliamentary committee probing the development of the Transport Asset Holding Entity (TAHE) called for an overhaul of the use of consultants last year, recommending the government introduce new controls to ensure consultants are chosen to provide genuine independent advice.
In early 2020, the state government took steps to claw back spending on technology consultants by capping daily rates. The move also allowed agencies to compare quotes from multiple suppliers.
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