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Accounting watchdog probes audits of Greensill and Gupta-owned bank

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PwC and Saffery Champness are being investigated by the accountancy watchdog over their audits of Greensill Capital and Wyelands Bank, with the former going bust and the latter having to repay depositors more than £250m following concerns of how it was a wider network of Greensill companies.

30th Jun 2021
Journalist
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The UK accounting regulator has opened investigations into the audits of Greensill Capital and Wyelands Bank, as scrutiny of the finances underpinning metals magnate Sanjeev Gupta’s empire grows.

Wyelands Bank is owned by Gupta’s metals-to-finance corporation GFG Alliance, which Wyelands financed along with other companies. GFG Alliance was closely linked to supply-chain financing company Greensill Capital which collapsed earlier this year.

The Financial Reporting Council (FRC) said it has started the investigation into Big Four firm PriceWaterhouseCoopers “in relation to its audit of the consolidated financial statements of Wyelands Bank for the year ended 30 April 2019”.

A separate investigation into Saffery Champness over its audit of Greensill Capital (UK) Limited for the year ended December 31, 2019 has also been opened.

London-based Greensill was the main financial backer of Gupta’s Liberty Steel, which employs around 3,000 people in England, Scotland and Wales.

Greensill, the brainchild of flamboyant Australian entrepreneur Lex Greenill, fell into administration in March after its insurer refused to renew cover for the loans it was making as part of its supply-chain financing model.

Supply-chain financing, also known as reverse factoring, allows both buyer and seller to improve cash flow at a reduced cost by utilising the buyer’s credit rating. Buyers can then lengthen their payment terms whilst providing suppliers with the option to receive payments earlier. Many investors across the world were caught in the ensuing fallout, including the investment bank Credit Suisse.

Lobbying scandal

The Greensill meltdown also triggered a lobbying row, exposing the extent to which certain individuals had access to the heart of the British establishment.

Former Prime Minister David Cameron, an advisor to Greensill, was dragged into the spotlight after it emerged he pushed, unsuccessfully, for Greensill’s services to be used by the health ministry and to be part of the Treasury’s coronavirus business loan schemes. Cameron apologised following weeks of pressure, but also said he had “done nothing wrong”.

Greensill was an advisor to Cameron during the latter’s time as Prime Minister.

The Serious Fraud Office announced in May it had opened an investigation into “suspected fraud, fraudulent trading and money laundering in relation to the financing and conduct of the business of companies within the Gupta Family Group Alliance, including its financing arrangements with Greensill Capital”.

The Bank of England (BoE) forced Wyelands to return £210m of deposits to around 4,000 savers in February this year after worries over how the bank was financing GFG Alliance.

BoE Deputy Governor Sam Woods said recently that the BoE’s enforcement investigation into Wyelands Bank and whether Gupta was “fit and proper” to be its owner, was ongoing.

A spokesman for Saffery Champness said: “As professional accountants we owe a duty of confidentiality to present and former clients and, with this matter the subject of investigation, it would not be appropriate to comment at this time save to say that Saffery Champness will of course be cooperating fully with the FRC.”

A spokesman for PwC said: “It’s understandable that there is regulatory scrutiny in situations like this. We will cooperate fully with the FRC in its enquiries.”

Further scrutiny

On Tuesday, the chief executive of Stephen Rose, chief executive of Wyelands Bank, appeared before MPs on the Business, Energy and Industrial Strategy select committee on Tuesday to answer questions on Liberty Steel and the future of the UK steel industry.

Rose has been in charge of Wyelands for less than a year, and said he could not give any comment in case of prejudicing the investigations by fraud officials.

He did confirm however, that Wyelands only managed to land two customers under a new business plan drawn up to make it less reliant on Gupta, its largest shareholder.

Rose told MPs that approximately 80% of the bank’s supply chain finance business came through companies that were part of, or customers of, GFG Alliance.

Milan Patel, a partner at small accounting practice King & King, which audited a number of companies within GFG Alliance, also appeared in front of the committee. He refused to answer questions about Greensill, citing legal grounds.

Oversight failures

Similar investigations into potentially flawed audits have done little to resolve structural problems inherent within the sector at the highest level, said Labour peer and accounting professor Lord Sikka.

“Relative to the size, fees and profits of the firms, these fines tend to be puny and have not secured desirable change in audit quality,” he told AccountingWEB in a wide-ranging interview. “Indeed, the firms can game the system to collect fees and then occasionally pay a fine, if they are caught. So more effective sanctions are needed.”

Lord Sikka suggested a ban on the firms securing any new audit business for a period of “five or so” years in addition to a fine. “Persistent offenders also need to be shut down,” he said. “This needs to be accompanied by regulations which give visibility to the audit process.”

Regulation which requires publication, such as that attached to the audit report, or attached to AGM resolutions, appointing/reappointing auditors, audit contracts and much more detail, he said.

“This transparency would enable stakeholders to ask informed questions, and the mere fact that the information needs to be disclosed would concentrate the minds of the partners,” he said. “They would not be able to get away with allocating for example just two hours of a partner’s time for audit. There is no reason why the audit files should not be publicly available.”

Relevant to the current cases, the dangers of supply chain finance were exposed by the 2018 collapse of Carillion, “but neither the government nor the accounting regulators came up with any accounting solutions,” he said.

“If anything, things have worsened because the FRC has more or less given up its role in setting accounting standards,” he said. “Its key role is now to endorse IFRSs which are driven by political games of corporate elites rather than the need to address problems in nation states.”

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