New South Wales government agencies broke procurement rules, failed to manage contracts and increasingly used only a handful of global giants while handing more than $1 billion to consulting firms, a damning audit has found.
The consultant spend came despite the Coalition’s 2019 election policy to reduce it every year over four years – a commitment it now almost certainly cannot keep.
The findings from the state’s audit office have been blasted by the opposition just weeks away from an election.
“New South Wales taxpayers should be appalled at these latest revelations and the extent of the Perrottet government’s waste,” shadow treasurer Daniel Mookhey said.
The agencies defended the use of consultants, blaming the pandemic and several natural disasters over the period requiring rapid development of new programs and increased expenditure. But agencies have accepted recommendations for a more strategic and closely monitored approach.
On Thursday, the NSW Auditor-General released its report on government agencies use of consultants.
It found between 2017–18 and 2021–22, NSW government agencies disclosed total spending of around $1 billion on consultants across more than 10,000 engagements.
More than 1000 consulting firms were used but just four – global giants KPMG, Ernst & Young, PwC, and Deloitte – took more than a quarter of the spend. Just 11 firms accounted for more than half the $1 billion spend in what has become an increasingly concentrated practice in the New South Wales government.
The state auditor general found the concentration of global giants created strategic risks, including advice not being sufficiently impartial and agencies becoming overly reliant on the firms.
A selection of consulting engagements by 10 agencies found alarming evidence the agencies “do not procure and manage consultants effectively”.
“We found that most agencies do not have a strategic approach to using consultants, or systems for managing or evaluating their performance. We also found examples of non-compliance with procurement rules, including contract variations that exceeded procurement thresholds,” the report said.
The audit also found gaps in data collection, inconsistent definitions of consultant, and inadequate record keeping among an “ad hoc” use of consultants, often for work that “fits within the core role of the public service”.
“Most agencies did not proactively manage their consulting engagements. The majority of consulting engagements that we reviewed were not evaluated or assessed by the agency for quality. Very few used any processes to ensure the transfer and retention of knowledge generated through consulting engagements.”
Consultants’ contracts were amended to increase the payments in almost one in three of the contracts examined by the auditor, with one instance of a $2.5 million increase. Just three of the 82 engagements examined were also shown to have been evaluated by agencies.
“One engagement in our sample included a report of unsatisfactory performance from a consultant (Boston Consulting Group). This consultant had been granted a contract extension several months prior to this report being made,” the auditor’s report said.
Knowledge transfer agreements were only found in 13 per cent of the examined engagements.
And while consultants were required to complete conflict of interest processes, there was no evidence of government staff doing so for some engagements.
The reliance on consultants comes despite a 2019 election commitment from the Coalition government to reduce consultancy spend by nearly $100 million over four years. Agencies have already missed the spending reduction targets by $99 million in three years making it “highly unlikely” the commitment can be kept, the Auditor-General found.
Shadow treasurer Daniel Mookhey honed in on the broken commitment.
“This is evidence of a 12-year-old, tired Liberal National government and it is clear that NSW needs a fresh start,” he said.
The NSW Auditor-General has recommended Treasury move immediately to ensure all consulting expenditure is captured in annual reports this year and on. Treasury’s NSW procurement division should also improve its data collection, guidance to other agencies and to monitor strategic risks of contract variations, single source procurements, and the concentration of suppliers.
All agencies have been asked to adopt a more strategic approach to the use of consultants, ensure compliance with procurement policy and improve record keeping.
In its response, NSW Treasury accepted all the recommendations but pointed to a “particularly unpredictable and volatile time” during the pandemic and several natural disasters.
“Outside consultancy expertise played a valuable role in assisting with this response,” NSW Treasury secretary Paul Grimes said in response to the findings.
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