Deloitte to refund $440K to Australian government over flawed AI report

Commissioned in 2024 by DEWR to assess a penalty-issuing compliance system, the Deloitte report faced criticism for serious errors, leading the firm to revise the document and offer a partial refund to the government

Global consulting firm Deloitte has agreed to partially refund the Australian government $440,000 after acknowledging the use of generative artificial intelligence (AI) in the creation of a flawed report for a federal department.

The report, commissioned in 2024 by the Department of Employment and Workplace Relations (DEWR), aimed to evaluate the government’s targeted compliance framework and its associated IT system, which automatically imposes penalties on job seekers who fail to meet their obligations. However, serious errors in the report have drawn criticism, prompting Deloitte to offer a partial repayment and revise the document.

AI use and inaccuracies spark criticism

The initial report, released in July, identified systemic problems with the compliance system, including IT defects and poor alignment with legislative frameworks. However, further analysis—first revealed by the Australian Financial Review—uncovered fabricated citations and references, raising concerns about the accuracy and credibility of the findings.

University of Sydney researcher Dr. Christopher Rudge played a key role in identifying the discrepancies. He attributed the issues to AI “hallucinations,” where language models fabricate information to fill in gaps. According to Rudge, the revised report not only failed to fix the inaccuracies but also added more fabricated references.

The updated version of the report, recently reuploaded by DEWR, includes an appendix that confirms the use of a large language model—specifically Azure OpenAI’s GPT-4o—hosted within the department’s secure cloud environment. Deloitte insisted the use of AI did not influence the report’s core findings or recommendations.

Political response and accountability concerns

The incident has intensified scrutiny of major consulting firms and their methods. Labor Senator Deborah O’Neill, who sits on a Senate committee investigating the integrity of consulting practices, condemned the firm’s reliance on AI.

“Deloitte has a human intelligence problem,” O’Neill said, calling the partial refund a “partial apology for substandard work.” She urged public agencies to reconsider their dependence on large consultancies and question who is actually completing contracted work.

A Deloitte spokesperson confirmed the matter had been “resolved directly with the client,” but the controversy has reignited debate about transparency and accountability in government procurement, particularly when artificial intelligence tools are involved in the delivery of critical public-sector work.