Australia: EY admits staffer drafted papers for alleged tax exploitation partner
Nov 20, 2023
EY Australia has admitted another staff member helped draft documents for a former partner who allegedly promoted tax exploitation schemes, but says the second person was working under instructions and is not accused of doing anything wrong.
The admission was made in the big four accounting firm’s reply to a series of questions from Greens Senator Barbara Pocock after The Australian Financial Review revealed the Commissioner of Taxation was suing the ex-partner.
EY said Australian Taxation Office court documents “set out that an employee at EY drafted documents to give effect to the scheme. The employee is not accused of any wrongdoing,” the firm said in its reply to Senator Pocock. The other staff member is not a partner and not a party to the proceedings in the Federal Court.
The Tax Office alleges the former EY partner promoted three so-called Tax Loss Access Schemes to seven clients between November 2016 and April 2021. The ATO sent a notice to EY in June 2021 which first raised some of the allegations that are now before the Federal Court. EY is not a defendant in the case.
“The commissioner has alleged that the documents were drafted at the direction of the former partner. There are no allegations against any other employee or EY,” the firm said in a statement to the Financial Review.
“It has not been alleged by the commissioner, and we have no reason to believe that any other EY partner or staff member acted inappropriately. As a result, no other EY partners or staff member were sanctioned in relation to the actions of this isolated individual.”
The EY staff member was junior to the partner. Non-partner staff are critical to the operation of big consulting and accounting firms, their billable hours are cheaper and are directed by partners to perform various tasks when working for clients which partners want done.
Earlier this year, a landmark report found EY staff feel bullied, harassed and overworked by partners and senior management and too scared to report bad behaviour by their superiors because it might harm their careers.
In a redacted version of the ex-partner’s defence, his lawyers warned they might rely on the “involvement of persons at [redacted] including drafting or review of documents”.
EY Oceania chief executive David Larocca told the Financial Review earlier this month the firm began a range of reviews once it was aware of the issues, and ultimately sacked the ex-partner in August 2022 after he disclosed he received more than $700,000 in unauthorised payments connected with the client transactions that later became the subject of the tax exploitation case.
EY said in its reply to Senator Pocock it reviewed whether any other tax partner had provided any advice with features that were the same as or similar to the advice provided by the former partner.
“That process indicated the former partner was the only partner who did so. EY therefore established the former partner acted in isolation and without the approval of EY, and contrary to the firm’s well-established policies and procedures,” the firm’s reply said.
The ex-partner applied for his name and the names of his former firm and clients to be suppressed, on the basis he would be embarrassed and distressed if he were identified. At the time, EY made no submissions supporting or arguing against suppression.
That application was rejected in the first instance following opposition from the Financial Review and the commissioner, and the partner is seeking leave to appeal, which will be heard in February.
News of the legal action piled further pressure on the big consulting firms following the PwC tax leaks scandal. Following questions from Senator Pocock, EY applied to the Federal Court to vary the suppression order to allow it to name itself and reply to the questions on notice.
“EY’s quality reviews established that the partner acted without the approval of EY and contrary to the firm’s well-established policies and procedures,” the firm said.
“When undertaking the quality review process, the former partner did not come forward to EY with any evidence of other partners being in any way involved at the time when the transactions were entered into, despite being asked directly by EY.”
[Financial Review]
