Deloitte Australia has agreed to partially refund the federal government after a commissioned report was found to contain multiple inaccuracies, many of which appear to have been generated by artificial intelligence.
The incident has sparked broader concerns about the use of generative AI in public sector consulting and the need for stronger oversight.
Background: A $440,000 Report Under Scrutiny
The Department of Employment and Workplace Relations (DEWR) had contracted Deloitte in December 2024 to conduct a seven-month assurance review of Australia’s Targeted Compliance Framework (TCF), an IT system that automates penalties for welfare recipients who fail to meet mutual obligation requirements.
The final report, published in July 2025, was intended to assess the legal and operational integrity of the system.
However, the report quickly drew criticism from academics and legal experts.
Dr. Christopher Rudge, a welfare law researcher at the University of Sydney, identified numerous errors, including fabricated academic citations, non-existent references, and a misquoted Federal Court judgment.
These discrepancies were first reported by the Australian Financial Review in August and later confirmed by DEWR.
Deloitte Report: AI Use and “Hallucinated” Content
The updated version of the report, published in early October, disclosed for the first time that Deloitte had used a generative AI language model—Azure OpenAI GPT-4o—as part of its research methodology.
The original version had omitted this detail entirely.
Deloitte acknowledged that some footnotes and references were incorrect but maintained that the substantive findings and recommendations of the report remain unchanged.
The firm used AI tools during the early drafting stages and had human experts review the final document.
Nonetheless, the presence of AI “hallucinations”—a term used to describe false or misleading content generated by AI—has raised questions about the depth of human oversight.
Dr. Christopher noted that the errors were not isolated and suggested that the original claims in the report lacked a solid evidentiary foundation.
“Rather than replacing a single fake reference with a real one, they’ve substituted multiple fabricated citations,” he said.
Deloitte Refund and Government Response
The government will receive a repayment from Deloitte for the final instalment of its A$440,000 contract, though the exact refund amount remains undisclosed.
A spokesperson for DEWR confirmed that the refund process is underway.
The revised report has corrected more than a dozen references and footnotes, along with typographical errors.
The department emphasized that the core recommendations of the report remain valid.
It also indicated that future consultancy contracts may include stricter guidelines on the use of AI-generated material.
Political and Ethical Reactions
The incident has prompted strong reactions from lawmakers and ethics experts.
Senator Deborah O’Neill criticized Deloitte’s approach, stating that the firm had a “human intelligence problem.”
She described the partial refund as a “partial apology for substandard work.”
She urged the government to make procurement processes more transparent and advised agencies to verify the use of AI in contracted deliverables.
Senator Barbara Pocock of the Australian Greens echoed these concerns and argued that Deloitte had misused AI. She also called for a full refund.
She noted that the types of errors found in the report would be unacceptable even for a first-year university student.
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