Ex-partner accused of tax misconduct acted in isolation, says EY

An axed partner accused of misconduct in relation to a tax avoidance scheme has been labelled a rogue operator by EY chief executive David Larocca, with the firm saying that he acted in isolation.

Professional services firm Ernst & Young has distanced itself from a former partner who allegedly promoted a tax exploitation scheme over the space of five years, with Oceania chief David Larocca describing the consultant as a “rogue operator”.

In a show of transparency, the accounting and consulting firm successfully applied to have a suppression order lifted over its link to the proceedings, although the former partner’s identity presently remains under wraps.

According to a statement from EY, the partner was cut loose in August of last year following a twelve-month investigation into the alleged misconduct, during which he admitted to having received over $700,000 in unauthorised financial benefits in relation to the advice and actions now under question. Broadly, the scheme involved the transfer and later redistribution of profits to loss-making third parties for an agreed percentage, in an effort to circumvent tax.

Larocca described such conduct as completely unacceptable, as demonstrated by the consultant’s termination. “The allegations involve deeply disappointing behaviour and actions by the former partner that contravene a range of firm policies that have been in place for many years. EY is very clear that the behaviour alleged against the former partner are the isolated actions of a rogue operator and are in no way reflective of the way we do business.”

In addition to the court proceedings brought by the Australian taxation commissioner, and suits lodged by two of the involved clients, Larocca revealed that EY was also exploring avenues of legal redress against the former partner, while continuing to fully cooperate with industry regulators. As part of that process, the firm recently entered into an enforceable voluntary undertaking with the Australian Tax Office around a number of commitments.

Ever-dependable when its comes to a sharp and cynical response, Greens senator and current consulting industry nemesis Barbara Pocock criticised the agreed measures – which includes additional staff training on the firm’s gifts and tax policies and continuation of its breach management process, with regular tax office reporting – as an inadequate slap on the wrist, despite EY not having been accused of any wrongdoing on the matter itself.

“Let’s be clear, this is an incredibly lenient penalty that requires little more than a training program for EY staff to make sure they understand existing policies and procedures,” Pocock stated. “This is the same paltry censure that was imposed on PwC in the wake of the tax leaks scandal and I’m afraid it doesn’t meet the expectations of Australian taxpayers, who I can tell you want to see much higher levels of accountability among these firms.”

Larocca is also facing a headache in the form of the former partner’s suggestion that EY colleagues had helped draft and review documents related to the scheme, and may be now regretting his earlier statements made to the Senate on PwC’s government tax breach. “We don’t market tax minimisation schemes. The actions of a group of partners and leaders of one firm have impacted the reputation of tens of thousands of professionals across Australia.”