ninja-lewis
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The Financial Reporting Council have announced £6m sanctions against Deloitte LLP for breaches of audit standards during its statutory audits of Go-Ahead Group plc's financial statements for the financial years ended 2 July 2016, 1 July 2017, 30 June 2018, 29 June 2019 and 27 June 2020.
Deloitte's audit failures in themselves probably aren't that interesting to the forum but the details revealed by the FRC about Go-Ahead and their management of the Southeastern and London Midlands franchises may be:
There was also a third breach relating to onerous contracts at a German rail subsidiary.
Press Release:
www.frc.org.uk
The 35 page Final Settlement Decision Notice linked at the bottom of the press release goes into further details about the contractual arrangements and what Go-Ahead management did.
Deloitte's audit failures in themselves probably aren't that interesting to the forum but the details revealed by the FRC about Go-Ahead and their management of the Southeastern and London Midlands franchises may be:
FRC Press Release said:The breaches relate to three of GAG’s subsidiaries which operated passenger rail services: London & South Eastern Railway Ltd (LSER), London & Birmingham Railway Ltd (LM) and Go-Ahead Bayern GmbH (GABY).
The first subsidiary, LSER, had received erroneous over-payments from the Department for Transport (DfT) under a rail franchise agreement before Deloitte became GAG’s auditor. Although obliged to repay the overpayments to the DfT, LSER retained the money, made accruals1 for it and began releasing the accruals to profit, all without informing the DfT. LSER continued with this practice after Deloitte was appointed as auditor, releasing £2.4 million in overpayments to profit in FY16, and accruing for a further £27 million from FY16 to FY20 under a subsequent franchise agreement. Evidence obtained from LSER’s management during the later audit years suggested an intention to release to profit the overpayments relating to this second franchise agreement, if they were not discovered by the DfT.
In addition to failing to tell the DfT about the overpayments, in FY19 and FY20 LSER classified the accruals in its financial statements in a way that disguised their true nature. LSER’s conduct breached terms in the franchise agreements requiring it to act in good faith. When the DfT became aware of LSER’s conduct in 2021, it decided not to renew LSER’s franchise on its expiry, took action to recover the overpayments and imposed a financial penalty of £23.5 million on LSER.
The second subsidiary, LM, also held accruals for sums that the DfT was unaware LM owed to it under a different rail franchise agreement. In FY20, once the franchise had ended, LM released £5.6 million of these accruals to profit, and attempted to conceal this by the way it worded the relevant note in its financial statements.
Deloitte, as auditor, failed to enquire sufficiently into the actions of LSER and LM, failed to apply sufficient professional scepticism, and failed to evaluate the evidence indicating the existence of fraud risk factors. Deloitte failed to appreciate that the company was under a contractual obligation to act in good faith and therefore in relation to LSER to bring the overpayments to the DfT’s attention.
There was also a third breach relating to onerous contracts at a German rail subsidiary.
Press Release:
Sanctions against Deloitte LLP
Executive Counsel of the Financial Reporting Council (FRC) has issued a Final Settlement Decision Notice under the Audit Enforcement Procedure and imposed sanctions against Deloitte LLP (Deloitte) in relation to the statutory audits of
The 35 page Final Settlement Decision Notice linked at the bottom of the press release goes into further details about the contractual arrangements and what Go-Ahead management did.