The PwC scandal and the company’s disregard for confidentiality are gaining more and more attention every day as more details are revealed. An internal investigation is currently being undertaken to provide more information to the numerous parties involved in the case. PwC has lost a lot of public trust but the company is trying to save what it can while the finance world is turning against it. Its competitors are now greatly benefiting from the negative publicity the company is receiving while the employees are facing uncertainty with their jobs. This case highlights the actual importance of confidentiality and preventing conflicts of interest.

What exactly happened?

If you do not know PwC, it is one of the ”big four” accounting firms, employing over 10,000 people across Australia. In 2015, Peter Collins, the International tax chief for PwC, was working with the government on its new tax laws. Peter Collins had signed confidentiality agreements prohibiting him from leaking information. However, he sent an email to colleagues with the intent of gaining more customers and helping them avoid taxes. The conflict of interest occurred as Peter Collins was helping the government design laws while simultaneously preparing to help his clients evade them.

 There were other people that participated in the project, even with a few international employees having access to the information but it is unclear at this stage if they acted on it. PwC gained $2.5 million from helping customers evade the Multinational anti-avoidance law (MAAL). The irony is that in 2015, Peter Collins had assured the government that no PwC employee was taking part in unethical activities. Now the company is involved in one of its biggest scandals. Peter Collins is prohibited from working as a tax practitioner for at least a year; nine others have been stood down. The Chief Executive Officer of PwC Australia stepped down on May 8. 

Sadly, more people were cc’d in the email but had no idea what was going on and did not participate. Now there is a risk that they may be affected in some way. This scandal does not only show how unfair this project was for the rest of the taxpayers, but it highlights how the actions of one employee can deeply affect the working environment for many thousands. Employees are now facing a lot of uncertainty, which will likely impact their mental health and productivity.

 The public losing trust in the company means that its reputation will take a long time to recover. As there is still an investigation being undertaken, it means that the media will cover more and more information as it is revealed. This will constantly remind consumers of what happened, further extending the damage. Moreover, PwC is now unable to acquire government contracts in the future, a move that is well supported by Australians. Research shows that 80% agree with the decision while they also expect the government to hire individuals who have the skills to do what external consultants do. They dislike that such work is outsourced to companies, as there will always be a conflict of interest risk. 

confidentiality

PwC confidentiality breach scandal: Not the first case

 It is not the first time that PwC has been the centre of negative publicity. In 2007, PwC settled a lawsuit with Tyco for being unable to detect the overstating income fraud that had been happening for years. Even though it was not fraud-related, PwC received negative publicity due to an Oscar mix-up in 2017. PwC was also recently fined £5.6m for breaching audit requirements, and the list goes on. Many believe that this will be the last scandal Australians need to stop doing business with the company. The social media attention this case is gaining is resurfacing many others, destroying the firm’s reputation even more. 

The impact of confidentiality breaches
The aim of confidentiality agreements is for those who sign them to keep all information between the parties involved and them only. Leaking information is an unethical practice, especially when the individual does so for personal gain. All types of misconduct look beneficial to the perpetrators in the short term. The company gains money, and the individual is given praise. However, people tend to forget the long-term. Confidentiality breaches and conflicts of interest have consequences that are quite common in most cases. Those include:

  • Loss of customer base
  • Increased costs
  • Ruined stakeholder relationships
  • Termination

Loss of customer base

As mentioned in the PwC case, the scandal has caused the public to distrust the accounting firm. Customers want to work with ethical businesses that abide by laws and regulations. They might think that if PwC staff are willing to take advantage of the government, they might be willing to take advantage of their customers as well.

Unfortunately for the company, this means that its revenue will drop as its clients choose their competitors. And in this scandal, this is true. The first news of the situation appeared weeks ago but media coverage is continuous, which will further reduce the firm’s customer base as more people learn about the incident. The larger and greater the breach, the harder it is to come back from it.

Increased costs

PwC will likely be dealing with lawsuits, investigation costs, loss of productivity and more in the coming few months. This will increase the costs the firm has to cover to be able to abide by requirements and keep its promise to do everything it can to earn customer trust back. Employees may choose to leave to look for better employment prospects, as the future of the firm is uncertain. This will reduce hiring and training costs as new individuals will need to fill the vacant positions.

The criminal charges the business may face will also increase costs as it will be asked to pay fines. All of these will put immense pressure on the financial health of the company. Another thing to consider is the missed opportunity costs, as PwC for example, will not be able to work with the government in the future, meaning a lot of funds in missed contract opportunities have been lost.

Ruined stakeholder relationships

When a business breaches confidentiality, is accused of conflict of interest or commits fraud, it can deter partners from wanting to work with them. When developing partnerships, people look at the amount of risk this partnership is likely to create. In an instance of a fraudulent company, it is unlikely that another organisation will want to collaborate as they will be afraid of their own reputation being impacted and their own customers turning against them. In cases of public companies, shareholders will probably take their money elsewhere as during fraud scandals, stock prices tank.

Termination

As it is seen in this case, if unethical behaviour is detected, the employment of the individuals involved is at risk. Confidentiality breaches are worse as they can affect future career prospects, just like fraudulent activities can. If an employee commits fraud, it can be hard for future employers to trust that they will not do it again. What stops them from doing it again? They might know how to hide it better this time. This is the type of uncertainty that clouds the mind during the hiring process.

The temporary bonuses or acknowledgements are just that, temporary. The company can choose to sue the employee as a confidentiality agreement has been breached. Usually, the clauses say that legal consequences will follow which can make the employee’s financial situation worse.

Not only is the business’s reputation ruined, but the employee’s as well. Depending on the size of the industry they work in, the individual may be blacklisted from companies.

Wrapping up

Companies have to remember that, ultimately, unethical behaviour is not worth it. The costs that individuals and organisations will have to pay in the future are far greater than what they will get in the present. Being an ethical business with slower growth is much more beneficial as consumers now expect ethical practice and corporate social responsibility.

Can we help?

Polonious is trusted by many companies worldwide to assist with fraud and confidentiality investigations. Once our clients choose their investigation team, we are responsible for supporting them and making the process as easy for them as we can. We provide investigators with automated workflows, risk matrices and a central storage system that can be accessed from only those involved in the case, anywhere, anytime. We are ISO 27001 and ISO 9001 certified, highlighting our commitment to confidential, secure and high-quality investigation case management.

Are you looking for an efficient system to help you identify fraud? Reach out and we will show you how we can help you!