Consultancy firms have been allowed to operate "beyond the law" and a royal commission needs to investigate the sector, a former KPMG partner says.
Brendan Lyon, an ex-infrastructure partner with KPMG, told a Senate inquiry into consultancy firms the big four companies should not be able to enjoy legal protections offered to the industry.
He said a royal commission was needed to examine the structure and regulation of the profession.
"The bastardisation of the partnership model by the big four firms to form a risk-free, tax-free and consequence-free business model is not in the public interest," Professor Lyon told the inquiry on Monday.
"It is clear on the evidence that these firms have been able to operate beyond the law, beyond sanction and beyond regulation."
The Senate inquiry was set up following a tax advice scandal involving PwC, where a former partner passed on confidential government information to clients.
Prof Lyon said a federal regulator was also needed to enforce standards within the profession, as well as improved transparency measures.
"The big four sit in every boardroom and cabinet across Australia but face no oversight and operate beyond the law," he said
"Many of the big four firms are not currently fit to enjoy the legal protections granted them under the professional scheme."
PwC, EY, Deloitte and KPMG are considered the big four consultancy firms in Australia.
Former head of the consumer watchdog Allan Fels told the hearing consultancy firms should split up to avoid further conflicts of interest between their different divisions.
He said the government needed to introduce legislation to break up large consultancy firms.
"Self-regulation can't be relied upon, nor can government regulation. We therefore need legislation to break up the big four," he told the inquiry.
"The big four argued that there are benefits from combining consulting and advisory work in a business that does audit.
"This is a rather dangerous argument for them to run."
Earlier, executives for Deloitte told the inquiry an employee who shared confidential government information has been stood down from the engagement following an "inadvertent breach".
Deloitte's chief risk officer Sneza Pelusi said the incident was reported to the government department involved.
But officials did not tell the inquiry which department the project fell under, despite repeated questioning.
Deloitte informed the department of the investigation's outcomes, which included deleting the information, standing down the employee and further disciplinary action, Ms Pelusi said.
She said the information was not shared outside Deloitte, but confidentiality requirements within the team working on the project were breached.
The information was not used for commercial gain, chief executive Adam Powick said
Chair Tom Imbesi said Deloitte supported a government review to strengthen regulatory protections of the industry.
But Deloitte said it had no intention of ring-fencing its government contracts.
"We're very proud to serve the Australian government, so when we think about how we structure ourselves, it's always from the viewpoint of how do we best serve the needs of our clients," Mr Powick said.
"Our public sector clients are expecting us to bring insights and skills from the private sector into the public."
Prof Fels said a similar approach could be taken to the consulting sector to what happened with the country's banks following royal commission findings.
"There is a severe conflict of interest of an actual institution and the interests of customers" he said.
"It was not resolved by self regulation and government oversight and that it could only really be solved by a break-up and that's now happened with banking."
