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The big four accounting giants racked up billions of dollars in auditing fees in the private sector as the quality of auditing declined, heightening concerns it could trigger another Enron-type corporate collapse.

The infiltration of the big four — EY, Deloitte, KPMG and PwC — in government departments has been well documented. What is less well known is their role in the private sector as auditors sprinkling holy water over company financial accounts, as well as offering consultancy services spanning tax minimisation advice, cyber security, IT and strategy.

Their power extends to the boardrooms of corporate Australia, where hundreds, possibly thousands, of alumni are directors of the most powerful organisations.

Governance and proxy adviser Ownership Matters crunched the numbers for 7.30, using four years of data, to unveil a series of uncomfortable truths about the depth and breadth of the big four across the country's ASX 300 companies.

Until now, the big four accounting firms had built themselves an aura of credibility and trust in government and corporate Australia.

The data reveals that 97 per cent of the external audit work of the ASX 300 companies was done by the big four.

These companies shelled out an estimated $4 billion in auditing and consulting fees to the big four between 2018 and 2022. But the concentration is in the biggest companies, with the top 20 ASX companies accounting for 50 per cent of the fees.

Even more concentrated are the big four banks — CBA, Westpac, National Australia Bank — and Macquarie Group, which spent a combined $832 million over four years, making them the biggest users of the big four's services.

But the real figure is unknown as listed companies only disclose consulting work done by their auditors, not other consultancy work.

And when it comes to servicing the $3.5 trillion superannuation industry, unlisted companies and trusts, the figures could be even more.

Alarmingly, while the big four have been dominating auditing, corporate watchdog ASIC has found the quality of auditing is declining. It is something Professor Allan Fels told 7.30 is a sleeper issue that could trigger a corporate collapse.

"We know that the global financial crisis of 2008 was partly triggered by bad auditing," Professor Fels said. "I have deep fears that something similar could occur to topple the global and the Australian economy in the coming period."

Last year, ASIC's inspection reports found deficiencies in a third of the biggest firms. Separate reviews found negative findings in 50 per cent of Deloitte's auditing cases and 48 per cent of KPMG's.

Accounting professor John Dumay described it as a market failure.

"To me, the value out of the audit is to be able to go to the investor and say, 'we have a good company, we're performing well, the auditors come and have given us a tick in a box, a clean bill of health, you can trust what we've got to say.' That's what an audit is supposed to do," he says.

"When it doesn't do that, because there are deficiencies in the audits themselves, then the system breaks down." People silhouetted against a white and blue KPMG logo.

Auditing plays a crucial role in the integrity of the financial system. Banks, investors, staff, suppliers and superannuation funds all rely on an auditor's independent assessment of financial accounts to ensure they can be trusted to make informed decisions.

When it fails it can be catastrophic. The collapse of Enron torched tens of billions of dollars of shareholder and employee money after it emerged that its financial accounts were a sham and it couldn't pay the bills.

In Australia, there are at least 10 legal actions underway, all alleging substandard auditing and advisory work across the big four firms. The cases include Noumi (formerly called Freedom Food Group) and its auditor Deloitte, the collapsed construction group Hastie Group and sandalwood producer Quintis, all of which misreported their accounts despite their auditors giving their stamp of approval. When the truth came out, shareholders took a drubbing.

Against this backdrop, Labor senator Deborah O'Neill recently reopened a parliamentary inquiry into the auditing industry to investigate the structure, deficient regulation and conflicts.

She will also look at why ASIC decided as part of a restructure it would abandon inspection reports, shrink the audit team and dump its highly regarded chief accountant, Doug Niven.

"It's hard to believe that this relatively new program, which was actually shedding some light on what was going on inside the big four, has been lost in a reshape of ASIC," she says. "I have grave concerns if nobody is watching. That's the perfect conditions in which further degrading of the quality of audit is likely to occur."

Senator O'Neill said conflicts had become the business model of the big four. "What we're observing is a business model where the conflict of interest is the model of business. That's how you grow your business," she told 7.30. "It's a failure of regulatory oversight that's allowed this to fester. And we cannot allow it to continue."

She says the longer an audit firm is inside a company, the more enmeshed relationships become.

It means the independence of the audit firm becomes questionable, which can impact their appetite to stand up to clients if accounting irregularities are suspected. If auditors act in the dual role as consultant, that independence can be further compromised.

Ownership Matters found that non-audit fees as a proportion of audit work for the audit firms was 39 per cent across the ASX300 companies between 2018 and 2022. This is where the big four act in the dual role of independent auditors and consultants, which is fraught with conflicts of interest.

Construction and developing giant Lendlease has had KPMG as its independent auditor for more than 65 years and their head offices are in the same building in Sydney.

They are also embroiled in a tax scandal with whistleblower Tony Watson, a tax lawyer whose career fell apart when he accused his client Lendlease of double dipping on tax, which he believed was wrong.

"I told them that they were stealing from our children, they were stealing from taxpayers," he told 7.30.

He joined law firm Greenwoods & Herbert Smith Freehills in 1985, quickly moving up the ranks to become partner, managing its biggest client, Lendlease.

But things started to unravel when he told a senior executive he disagreed with a tax scheme that related to their retirement village acquisitions. He estimates it boosted profits by up to $300 million, which he says they weren't entitled to.

He says PwC was brought in for advice and backed the scheme. KPMG signed off on the accounts.

Mr Watson alleges in a court case lodged in the Federal Court against his law firm and Lendlease that by 2014 he was dumped from the Lendlease account. He spiralled into depression and while he was on unpaid sick leave, he was terminated.

"I just got a letter from them saying we've decided to terminate you," he tells 7.30

When he recovered from his breakdown, he says, he decided to revisit his concerns about Lendlease and its tax scheme, this time meeting senior Lendlease officials and a partner at PwC as well as writing letters to the company.

In one email, he says Lendlease is "taking an aggressive and wrong view" in its tax deductions. In another, he warns the ATO will not fall for it. He also tipped off the ATO, which is auditing this aspect of the company.

Now he is waiting for the ATO to give its verdict and for his legal action to go through the courts.

In a statement, Lendlease said it "periodically conducted robust audit tender processes," and that its auditor "KPMG had the strongest credentials and commercial insights" after its last tender a decade ago. Last year, it said it would conduct an audit tender process in 2023.

In a statement, it said, "in May 2023, we paused this process with the intent for it to be resumed at a later date". The company said it was confident its tax treatment was consistent with the law.

KPMG said in a statement: "We believe directors are best placed to determine the need for a change of auditors." It said its focus was on "delivering high-quality audits, and a deep understanding of the business is critical to achieving this". It added that "KPMG has comprehensive policies and processes in place to manage potential conflicts".

KPMG said ASIC's inspection reports were disappointing. It said it agreed with some but not all of ASIC's findings and it had launched an audit quality transformation program.

Deloitte said it was committed to delivering the highest quality audit services to clients and it remained focused on doing everything it could to deliver "trusted and expert" audit services for its clients.

ASIC said moving forward, it would combine its annual audit reviews with surveillance of financial reporting and that "targeted reviews of the quality control systems of the largest six firms will also be undertaken from time to time".

It said continuing to provide annual individual reports on the biggest firms "would not provide a meaningful measure of overall audit quality".

PwC declined to comment on Mr Watson's allegations but said: "PwC firms are subject to our global tax code of conduct, which requires tax positions be supported by credible basis in tax law."

In Australia there has long been disquiet about the revolving door between high political office and big business.

A survey published two years ago by a major public health journal found two-thirds of people believe public officials — including politicians — should either be banned from lobbying altogether, or subject to a cooling-off period of as long as five years.

Last January, a report by the Human Rights Law Centre found former officials were more often granted meetings with government as well as a "sympathetic audience". The shift of bureaucrats and politicians into corporate roles was creating an "elite class of the politically powerful and the incredibly rich", while alienating the Parliament from "the values and interests of voters".

The research focused on tobacco, gambling and mining. But there's another area of public policy where the path from politics to the corporate world has been so well-trodden, for so long, it's worn to a shine: Australia's sprawling defence portfolio, where billions of dollars in contracts are showered on arms-peddlers every year.

War is big business. Look no further than Ukraine, an atrocity prompting cartwheels in the boardrooms of companies like Lockheed Martin, Raytheon, BAE Systems, Northrop Grumman and General Dynamics. Hundreds of thousands dead perhaps, but the world's top arms dealers outperformed the NASDAQ by an average of almost 24 per cent in the year following the Kremlin's invasion.

Of course, there are real-world justifications for piping public money into multinationals that manufacture weapons. They just don't make the business any less fraught. Now, the $400 billion AUKUS program has military contractors searching for angles, and to their aid has come a generation of revolving-door salesmen and lobbyists.

There is Joel Fitzgibbon, a former defence minister turned lobbyist for a firm whose clients include French weapons-maker Dassault, Spanish shipbuilder Navantia and arms company Raytheon. And Brendan Nelson, also a former defence minister, who is now a senior executive at aerospace company Boeing.

Joe Hockey, treasurer in the Abbott government, and Christopher Pyne, yet another former defence minister, also make fascinating case studies.

There's no suggestion any of these former cabinet ministers have broken the law or engaged in misconduct. But there is something discomforting about the concept of cabinet ministers in particular who switch from protecting the Commonwealth to protecting a balance sheet.

In 2018, Pyne's advisor, Adam Howard, established GC Advisory Pty Ltd one month after quitting the minister's office. In 2019, just weeks after Pyne farewelled the defence portfolio, Howard restructured the company and handed him half of it. I asked the pair whether Pyne paid anything for these shares, but both declined to answer, saying the transfer was "commercial in confidence".

Pyne had actually begun talks about a defence-related corporate role while still in cabinet, and soon after leaving government had to be reminded of his obligations under the government's code of conduct for lobbyists.

Pyne told me that at all times he has "complied with the requirements of the Ministerial Code of Conduct". It's likely he came to the attention of the Attorney-General's Department only by dint of his high profile because otherwise management of the government's code of conduct for lobbyists has been, to put it delicately, a farce.

The code stipulates cooling-off periods for senior officials, ministers and advisors — they must not lobby for a period of 12 to 18 months on behalf of companies with which they had dealings while in office.

But an audit in 2020 found the regulation of the code was often done by just two civil servants in the Attorney-General's Department who had the benefit of no system whatsoever for checking whether former officials were properly outing themselves as lobbyists. Indeed, a year earlier, the department failed to identify exactly how many lobbyists it had itself registered, overstating that number to the Parliament by 40 per cent.

The department had not been checking the end dates of government employees, had never conducted a "compliance risk assessment" and had "no method" to determine if lobbyists were abiding by the rules, or even declaring "whose interests they are representing". The department says it has now fixed these issues, and several months ago the audit office signed off on the reforms it has implemented.

What has not changed, however, is that enforcement of the rules does not go much beyond the seeking of solemn assurances that such rules won't be broken. The regulation of lobbyists, you will be unsurprised to read, was always designed to be "light touch".

Hockey's slipstream from ambassador to corporate adviser — as head of a US-Australian firm called Bondi Partners — was just as eye-watering.

Bondi Partners LLC was registered in DC on November 22, 2019. The paperwork records a "commencement date" of November 7, 2019.

The former US Ambassador's final day in the public service was not until January 31, the following year. Joe Hockey's DFAT-employed American advisor, Alex Tureman, filed the papers in DC while both men were still being paid by Australian taxpayers.

Later, when Bondi Partners' Australian entity was finally registered with Hockey its sole shareholder, he was still two days shy of handing back the keys to the embassy; indeed, his 100 shares were listed against 3120 Cleveland Avenue, Washington, the official residence of the Australian Ambassador.

Tureman told me that "as a sole proprietor" he registered Bondi Partners LLC, along with two other companies in 2019, "with no immediate intent to utilise them", and that the company which was eventually used, Bondi Partners International LLC, was not incorporated until March 26, 2020.

He said he abided at all times by the DFAT code of conduct and that he "did not conduct any business until I had concluded my employment with the Embassy".

A spokeswoman for Hockey said he was "not involved in any US business registrations prior to March 2020", and that he complies with "all relevant codes of conduct and legislation in Australia, the US and the UK".

DFAT has strict policies requiring the declaration of both "real" and "apparent" potential conflicts of interest; officials are required to seek permission for secondary employment and to acknowledge any potential conflicts of interest in an online form. As a head of mission, Mr Hockey had an additional obligation to provide an "annual written declaration".

Neither man answered questions about whether they filed declarations or sought permissions concerning their planned venture, and DFAT did not answer queries about the issue either.

It seems clear, though, that by at least the beginning of November 2019, the men had developed a plan to launch Bondi Partners, a US-Australia firm which now boasts of "navigating the critical intersection of policy, politics and the private sector", and that timing raises an obvious quandary.

During meetings that Hockey and Tureman held at the end of 2019 and the beginning of 2020, how should taxpayers discern — beyond both mens' assurances — whose interests were being served? Those of the Commonwealth, which was paying their salaries, or those of their yet-to-be-announced private venture?

Hockey's spokeswoman assured me that "for the entirety of his diplomatic posting, [he] was 100 per cent dedicated to advancing Australia's national interest".

Since leaving the embassy, however, the former ambassador has not been shy about spruiking his "government … and political experience" to those willing to buy it.

And he has aimed his firm, in particular, at the sluice of defence spending coming down the pipeline, principally by recruiting military and security officials from both Australia and the US, including Donald Trump's pick for secretary of the Navy, Richard Spencer. He even tapped the Australian defence attache with whom he worked at the DC embassy.

He and his wife, investment banker Melissa Babbage, have persuaded the Packer-backed Ellerston Capital to let them take a cut of any "national security" investments they can send its way. They've called this arrangement the 1941 Fund, and Ellerston's Ashok Jacob has said it's about getting aboard the "government-induced gale force tailwind" of national security spending.

One intriguing aspect of Joe Hockey's corporate transformation is his reluctance to work as a lobbyist. Unlike Pyne, his name is absent from the federal government's lobbyist register and he pitches himself, rather, as a provider of executive counsel.

(Bondi Partners does appear on the lobbyist register, but only as the owner of a lobby shop named Pacific Partners Strategic Advocacy — which the register says has not ever had a client.)

By contrast, the same register suggests Pyne, a famously gregarious personality, is minting it.

Among the many clients of his other firm Pyne & Partners are Saber Astronautics, Droneshield Limited and Electro Optic Systems, which flogs remote-controlled guns to the Persian Gulf. Even the UAE Embassy is a customer, which takes quite some getting your head around; a foreign diplomatic service pouring petrodollars into the wallet of a former Australian defence minister.

Some will say that our former hard-working ministers deserve the chance to enjoy an income after politics. It's just that, well, they already do. Both Hockey and Pyne enjoy taxpayer-funded pensions in excess of $200,000 — for life.

desu