By Lewis Jackson

SYDNEY (Reuters) – PwC Australia’s sale of its government consulting business may give it temporary respite from a crisis in its tax practice but is unlikely to repair its toxic brand in the country anytime soon, according to experts.

PwC said on Sunday it would sell the division for A$1 ($0.67) to private equity firm Allegro Funds to repair trust and save jobs.

But a source with direct knowledge of the matter said partners from the division drove the divorce to rescue their livelihoods from a damaged brand frozen out of government contracts. The person could not be named as they were not authorised to speak publicly.

PwC’s brand has been damaged by revelations that a former partner shared with colleagues confidential government plans to prevent tax avoidance which were then used to pitch multinational companies for work.

The exodus of public sector partners could lead others to follow, according to Allan Fels, a former head of Australia’s competition watchdog, as the scandal is investigated by three parliamentary inquiries, including one launched on Friday, and probes by police and two tax authorities.

“The sale does not resolve the issues of past behaviour including possible criminal action,” he told Reuters. “They’ll (staff will) be thinking: ‘The firm’s reputation has been damaged and will affect my part of the business.'”

PwC declined to comment.

Fels has long called for the “big four” firms to split audit from advisory to avoid the latter compromising the former.

The spin-off illustrates how the enormous pressure and scrutiny on PwC from regulators and politicians is creating friction with the partners and staff who are the firm’s main assets.

PwC acting chief executive Kristin Stubbins told a state parliament inquiry on Monday the firm would not benefit from a sale that will lop off a fifth of its current revenues.

Six months since tax authorities first revealed the PwC breach, questions remain about the staff and clients involved, and a string of government agencies, public bodies and pension funds have frozen ties with the firm.

While Allegro Funds will rebrand its purchase and appoint a mostly independent board, PwC remains saddled with the tax practice at the heart of the scandal.

That taint is likely to spread despite the “purification ritual” sale to Allegro Funds, said Professor Clinton Free, who teaches management accounting, fraud and governance at the University of Sydney.

“That would see a further loss in revenue and profit elsewhere due to the brand impact as clients walk away,” he said.

Already the two senators leading the federal government inquiry have warned the firm the sale will not wipe away responsibility.

“It is beyond plausible that PwC think they can just phoenix their way out of the deep cultural failures that are a matter of record and remain unresolved,” Labor Senator Deborah O’Neill said.

($1 = 1.4894 Australian dollars)

(Reporting by Lewis Jackson; Editing by Alasdair Pal and Sonali Paul)

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