A big consultancy is once again fined for malpractice – but is still writing government policy
The large consultancy firm EY has just been fined for an ethical breach, quality control failures and a failure of obligations of independence in its auditing of a Scottish water company. It was fined half a million pounds.
This comes less than a week after the same firm was fined £6.5 million for using unrealistic numbers supplied by the management of a company they were auditing (the Thomas Cook travel agents) to suggest it was in an better financial position than it was which contributed to the collapse of the company.
In both instances EY was expected to act as an independent auditor to provide guarantees that the companies they were auditing were both being honest and also remained viable going concerns. In both cases they were happy to act in a way that gave the client company what it wants rather than acting independently.
There are four big accounting and consultancy firms (generally know as the Big Four). In just a year and a half of the most recent accounting years (2021, 2022 and 2023) Deloitte was fined £1.25 over work it did for insulation firm SIG, KPMG was fined £1.35m over Eddie Stobart Logistics, £1.75m over retailers The Works, £1.25m over lighting company Luceco, £21.4m for the Carillion collapse and £4.5m over Rolls-Royce, and PWC was fined over Eddie Stobart Logistics (£3.35m), Babcock International Group (£7.5m), BT (£2.5m) and Galliford Try (£5.5m).
The scale of failure of duty is remarkable and in every occasion it acted to benefit the company being audited over the greater public good that these auditors are supposed to be representing. In fact the scale, regularity and consistency of the malpractice these fines represent suggests it is a core part of these firms' business model.
This would be of enough concern if this was just the provision of essential auditing oversight of giant corporations, but it isn't. These same four corporations are a de facto outsourced civil service in Scotland.
Returning to EY for a moment, the following is a list of contracts it has been given by the Scottish Government in recent years: they design the Scottish National Investment Bank, decided whether the Scottish Government could give as direct award of a ferry contract to publicly-owned ferry operator CalMac, designed the system for the distribution of heating grants, provided all the advice for the Scottish Government's ill-fated Gupta smelter deal (an under-explored recent scandal), advises the Scottish Government on its financial portfolio, built the business case for a ‘Granemouth transition' including a big carbon capture and storage facility (which Common Weal never tires of pointing out won't work) and made the assessment of Scotland's just transition to renewable energy. They also acted as auditor for the Scottish Government for ten years.
Then again, they also got a contract for training civil servants, so perhaps it isn't so surprising this whole sector appears to be like a snake eating its own tail. And when you get to the end of it you start again, discovering that while advising the Scottish Government on a just transition away from oil and gas, EY was also advising oil and gas companies.
It is quite remarkable that this conflict of interests has resulted in so little scrutiny or push-back. Government policy is being written by big businesses with clear and unavoidable conflicts of interests while an agency of government is constantly finding them guilty of and fining them over. This practice is expanding all the time.
Common Weal believes that there should be a fundamental reorientation of how policy is made in Scotland. First, external consultancy should be banned altogether other than where there is an incredibly subject-specific advice needed (such as a consultancy with specialist scientific knowledge being consulted on an issue relating to that science).
And then a new system of policy development should be put in place with an internal consultancy service set up by the public, for the public, owned and governed in the public interest. We also advocate 'policy academies' made up of seconded civil servants, academics and other experts with no vested commercial interests, each attached to a university and each focussed on a single issue (health, housing, transport, energy etc.).
That would create ways to develop policy in the public interest which are not controlled by corporations with a track record of what many in the public would identify as a pattern of corruption.
To find out more, read our book Sorted.