Deloitte executives on Monday told a Senate inquiry into the big firms the staff member had “inadvertently breached” Deloitte’s protocols by sharing the information while working on a government project.

Deloitte’s chief risk officer Sneza Pelusi said the incident was reported to the government department involved.

However, it has not been revealed which department the project fell under.

“We worked with the department to go through the investigation, share the investigation with them at the conclusion, including the outcomes of that investigation, which … included deleting the information, standing down the individual who did do the inadvertent breach and further disciplinary action,” she said.

Pelusi said the information was not shared outside of Deloitte, but confidentiality requirements within the team working on the project were breached.

Deloitte said the incident was detected by the firm and reported to the client within 48 hours. The matter was immediately investigated and an action plan, including disciplinary action, was agreed with the client to their satisfaction.

This was not a reportable matter, under any regulatory or professional framework.

The employee involved was stood down from the engagement, not from the firm.

Chief executive Adam Powick said the information was not used for commercial gain.

Chair Tom Imbesi said Deloitte was supportive of a government review to strengthen regulatory protections of the industry.

Imbesi also said the firm would welcome annual reviews being conducted by the national audit office or another oversight body.

The inquiry was set up following the PwC tax advice scandal, where a former partner passed on confidential government information to clients.

Deloitte’s admission came after former consumer watchdog head Allan Fels called for big consultancy firms to be broken up, in a bid to reduce the risk of conflict of interest.

Fels, who previously oversaw the Australian Competition and Consumer Commission, said the big firms should only focus on auditing, rather than consultancy work.

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 on Monday.

“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.”

Fels said a similar approach could be taken to the consulting sector to what happened with the country’s banks in the wake of 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.

“They have largely or totally got out of the most conflicting activities.”

Finance Minister Katy Gallagher said while she was aware of an over-reliance on consultancy firms being used for government projects, the scale became apparent after she won office.

“It is a problem – it is worse than I thought,” she said.

“We’re taking steps to rectify that, but it’s going to take a bit of time because of the way the imbalance has occurred over particularly the last five to seven years.”

The finance minister said the government was trying to bolster in-house consultancy for the public service.

Shadow treasurer Angus Taylor said conflicts of interest with consultants needed to be better managed.

“Government can become a better client. That means using consultants for when they have real value,” he said.

“There are times when consulting skills are extremely useful to government and to businesses.

“If there are conflicts of interest, they need to be managed properly.”

-with AAP