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Government supports failing auditors with coronavirus consultancy payments

Philip Fisher finds unlikely parallels between poor auditing performance and awards of government contracts.

24th Sep 2020
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Deloitte office in Rotteerdam deloitte does Tax Accounting, Consultancy and Financial advice.
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If you are one of the biggest firms in the country, the government will happily fund fines for poor performance. That might seem counterintuitive but it is the conclusion that one could easily reach on looking at two sets of recently published statistics.

As this column has regularly reported, large firms of accountants are not very good at auditing. Each year, the Financial Reporting Council (FRC) provides reports on audit performance by the biggest firms in the land and, as sure as eggs are eggs, every firm involved has a series of black marks against its name.

Last week, Deloitte was fined the staggering sum of £15m plus £5.6m of legal costs for its work (or lack of it) in connection with Autonomy.

Given that the former CFO of Autonomy was jailed for five years following the sale of this company of dubious worth to Hewlett-Packard for $11.1bn, one could argue that the firm and two partners who were respectively fined £500,000 and £250,000 got away lightly.

While Deloitte has broken all records, every one of the top six accountancy firms has been guilty of audit failures that led to eye-watering penalties. Ignoring mitigation for early payment, the list of largest fines levied by the FRC reads as follows.

 

Largest Fine

 Govt Contract

Deloitte

 £ 15,000,000

 £   8,000,000

PwC

 £   6,500,000

 £   7,400,000

KPMG

 £   5,000,000

 £   3,800,000

GT

 £   3,000,000

 £   3,500,000

EY

 £   1,800,000

 £   5,400,000

BDO

 £       200,000

 

Perhaps this accountant is an innocent but such data is truly shocking. Readers may well wish to send congratulatory notes to BDO, which had not entered the table at all until the middle of this year, although whether praise is really due for being the least bad of a very bad bunch might be open to question.

Consultancy payments 

Readers will have noted that there is a second column. This is a list of published data reported in various media sources last month. It shows the amounts of coronavirus consultancy payments made to large accountancy practices since the start of the pandemic. For those that are interested in such things, the total amount of consultancy payments including those paid to businesses in lesser industries is £56m.

While the government has periodically made bold statements about its desire to stamp out bad behaviour by refusing to award contracts to miscreants, this table gives that hollow idea the lie.

There is considerable irony in the discovery that the only one of the top six firms not to get a government contract was the one that, to date, has been an exemplar when it comes to avoiding million pound plus fines for audit failure.

While it seems unlikely that the Cabinet Office’s intention was to finance and replenish partners’ profits that have been so cruelly diminished by the FRC, that is the effect.

Given that the government is now proposing to spend £100bn over the next few months in creating an even more "world-beating testing system" than the "world-beating testing system" that we have already, there seems to be every chance that the sums in the consultancy column above will soon be dwarfed by new payments.

Some might enjoy the further irony, when they consider that the government seems determined to make use of the services of large firms of accountants to carry out projects of the kind for which they regularly get criticised by the FRC and, less often, fined vast amounts for egregious poor performance.

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By Justin Bryant
25th Sep 2020 09:19

Who believes the number of qualified audit reports would increase if the NAO did all plc company audits? Who believes it would decrease? Yes; that's exactly right. The problem is as simple as that and the other supposed conflicts of interest are basically illusionary (or at least massively less significant) and action to deal with them are a complete waste of time (e.g. getting all staff to sell their shares in audit clients; as if that really makes any difference in practice - these staff probably have little clue about what shares they hold (unless they're asked to find out) and if they did whether their firm is the auditor and I bet they care even less, as they should all know that these Big 4 audits are a waste of time (at finding out & disclosing problems) for the very reason stated above).

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