Deloitte fined £6m for 2016-20 audit failures at Go-Ahead Group plc (Southeastern and London Midland)

[ninja-lewis]

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:

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

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.

 

[Djgr]

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:

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

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.

You wonder whether any private operations are honest and/or competent today?

 

[Taunton]

I come across this sort of thing. The value of audits has been diluted by them becoming significantly profitable in their own right, and a typical example when we questioned why the "professional auditor" had not raised an issue they had found, and asked what they were thinking of, the reply was "We were thinking, of course, about being reappointed for next year's audit". So don't rock the boat.

Equally, I wonder if the DfT's auditors ever identified from their end the multiple overpayments made to a TOC.

 

[GordonT]

Equally, I wonder if the DfT's auditors ever identified from their end the multiple overpayments made to a TOC.

I've no idea but is it conceivable that they did (eventually) and this is how the fraudulent activities came to the attention of the FRC?
Or it could have been exposed by a whistleblower with inside knowledge.

 

[800002]

I think the DfT came to realise.

I've no idea but is it conceivable that they did (eventually) and this is how the fraudulent activities came to the attention of the FRC?
Or it could have been exposed by a whistleblower with inside knowledge.

From ModernRailways artical

https://www.modernrailways.com/article/south-eastern-milked-over-13-year-period

TRIGGER

Overpayments had first been identified in July 2020, when DfT discovered that an indexation error had been made in the calculation of franchise payments due under the 2014 franchise agreement.

DfT initially believed the amounts overpaid would have largely been recovered through the profit sharing arrangements in the franchise agreement. But LSER eventually admitted that the amount of subsidy to be repaid in connection with the HS1 TAC was higher than DfT had identified.

 

[Taunton]

The L&SE issue came to light in presumably 2020, and the franchise was terminated in 2021. By then the same auditors had been involved, as stated here, for the previous five years audits, a valuable continuing business.

 

[TUC]

For the DFT to realise in 2020 that an error had been made in 2014 hardly screams competence on their part.

 

[Djgr]

For the DFT to realise in 2020 that an error had been made in 2014 hardly screams competence on their part.

True but they assumed that the TOC weren't con merchants.

 

[800002]

True but they assumed that the TOC weren't con merchants.

You mean above the usual level of thievery within Government procurement/ contractor operations

 

[Adam Williams]

For the DFT to realise in 2020 that an error had been made in 2014 hardly screams competence on their part.

I think the National Audit Office tore them apart for this, but yes - there has been a lot of focus on the auditor and the trian operator, and not nearly enough focus on how carelessly public funds were managed in the first place, in my opinion.

 

[Tetchytyke]

Having staff of sufficient experience and knowledge to be able to check whether contractors are crooks is just another hidden cost of privatisation.

As Serco keep proving too, it’s an expense the government often avoid.

there has been a lot of focus on the auditor and the trian operator, and not nearly enough focus on how carelessly public funds were managed in the first place, in my opinion.

Perhaps, but only Go-Ahead were behaving fraudulently.

 

[Djgr]

Having staff of sufficient experience and knowledge to be able to check whether contractors are crooks is just another hidden cost of privatisation.

As Serco keep proving too, it’s an expense the government often avoid.


Perhaps, but only Go-Ahead were behaving fraudulently.

Given the vices of incompetence and fraud, thieving is far far worse.

 

[Watershed]

It's frankly appalling that no-one has been prosecuted yet (or, it seems, will be) over the fraud that was perpetrated against the public. Funny how when the boot is on the other foot the railway is more than happy to prosecute people over comparatively trivial sums.

 

[Dr Hoo]

Given that the ‘discrepancy’ was detected in 2020, despite having arisen in 2014 can we conclude that auditing only takes place every few years?
Or was this a ‘chronic’ failure annually?

 

[Adam Williams]

Perhaps, but only Go-Ahead were behaving fraudulently.

Only a minority of people burgle houses, but I'm not stupid enough to live without a front-door that locks.

 

[Taunton]

Having staff of sufficient experience and knowledge to be able to check whether contractors are crooks is just another hidden cost of privatisation.

It's not a huge skill. Reading across the various accounts to work out what happened here, it's pretty basic book-keeping for the DfT to keep track of these sums, which any commercial business would do straight off.

It's pretty normal in the business world that you pay what you are asked to pay, with invoices, bank requests, etc, and indeed if you are not asked for them you hold them as revenue accruals for a few years then write them off into profit; the auditors are fine with that as standard practice, and indeed the staff around at that time may not even have been there some years earlier to know the full detail of a line in the accounts unless asked. Legally, anything not claimed within six years cannot be reclaimed by court action, known as "Statute Barred". Note that nearly six years was the duration here.

A contact paid £100k for an audit, almost two years later they received another invoice for another £100k for "associated accounting services found to be previously unbilled". Refused to pay, went to court, but didn't last long.

Lawyer: "The work was done, we have invoiced for it".
M'Lud: "So you didn't invoice the work until two years after it was done".
Lawyer: "Yes".
M'Lud: "Pray, what profession do your clients follow?"
Lawyer: "Um ... they are accountants.
M'Lud: "Hmmm ... would you like a short adjournment to have a word with your clients ...".

 

[Nicholas Lewis]

It's frankly appalling that no-one has been prosecuted yet (or, it seems, will be) over the fraud that was perpetrated against the public. Funny how when the boot is on the other foot the railway is more than happy to prosecute people over comparatively trivial sums.

Dont disagree and when it comes to financial misfeasance in the UK this is invariable the outcome.

Who would you prosecute though? The buck stops with the financial director presumably when it comes to the accounts but you would have to prove that individually willfully instructed the funds to be moved to benefit L&SER. Why would they do it? Im surmising that there was a bonus scheme for directors in part based on profit.

 

[Pegpilot]

A quarter of a century ago I was part of a consultancy team commissioned by the SRA to assess a bid to run a TOC for a contract renegotiation.

My job was to tear apart the bidder's operational cost model for inconsistencies.

Blow me if I didn't find over a dozen "inadvertent errors" all tending to over-egg their cost base and by extension their subsidy requirement.

Like assuming Saturday was the same as M-F for train mileage calcs (it wasn't), inserting a charge from their parent company for a licence to apply their branding to the trains (so the tax payer foots the bill for their corporate advertising?). I could go on. All below the level of legal fraud, but it did make you wonder.

(But hey, Mr Lewis, I'm sure we must have debated the future of rail privatisation in the George at Elephant & Castle in 1980. Or maybe we were too busy singing along to "Ashes to Ashes" on the last day of term.)

 

[GordonT]

One wonders if other examples of this type of thing involving other companies have gone undetected. I vaguely remember at the start of privatisation the "in house" bid for c2c was dramatically knocked back due to their attempted fleecing of TfL by deliberate wrongful attribution of Travelcard sales.

 

[Swedenorer]

Well the Horizon enquiry heard that Post Office Ltd were certainly transferring suspense account money to Profit without investigating discrepancies - after three years. It was one of the things that Second Sight went after.

If as said above auditors are fine with revenue accruals going to profit in this way without some explanation of where they came from one understands their frequent bland acceptance of 'going concern' statements in companies that go bust a few months later.

 

[Tetchytyke]

Only a minority of people burgle houses, but I'm not stupid enough to live without a front-door that locks.

I quite agree. However, various governments don’t seem to see it the same way. It’s almost as though these big corporates donate lots of money to the two main political parties.

That said, it isn’t your fault if you forget to lock your door and you get burgled. It’s the burglar’s fault.

== Doublepost prevention - post automatically merged: Monday at 08:24 ==

One wonders if other examples of this type of thing involving other companies have gone undetected.

Of course it does. Governments take a political decision to kill the other way because grilling these people too much is “anti business.”

 

[Snow1964]

BBC is reporting that tonight's Panorama will be about Deloitte falsely back dating documents 3 years to change ownership of assets related to a certain Russian Oligarch

Suggests there are less than professional people who happy to break the law (for presumably a nice fee) in Deloittes. Sounds a bit like the behaviour at Anderson a few years ago (which led to their downfall)

Accounts signed off by Deloitte in Cyprus meant assets such as superyachts, mansions and private jets worth $672m (£508m) vanished from Abramovich's company accounts.

Deloitte also appears to have advised on a scheme to evade a huge tax bill on the oligarch's wealth through the falsification of documents.

Deloitte helped in falsifying documents to evade tax on Abramovich’s wealth, BBC finds

Backdated paperwork also made the Russian oligarch’s yachts and mansions disappear from accounts, investigation finds.

www.bbc.co.uk

 

[The exile]

That said, it isn’t your fault if you forget to lock your door and you get burgled. It’s the burglar’s fault.

The burglar is the offender - but your insurance company might have something to say about fault in terms of the loss sustained!

 

[contrex]

BBC is reporting that tonight's Panorama will be about Deloitte falsely back dating documents 3 years to change ownership of assets related to a certain Russian Oligarch

Suggests there are less than professional people who happy to break the law (for presumably a nice fee) in Deloittes. Sounds a bit like the behaviour at Anderson a few years ago (which led to their downfall)

Deloitte helped in falsifying documents to evade tax on Abramovich’s wealth, BBC finds

Backdated paperwork also made the Russian oligarch’s yachts and mansions disappear from accounts, investigation finds.

www.bbc.co.uk

BBC News says that Deloitte is 'the world's biggest accountancy firm'. Are we to suppose they are too big to fail?

 

[Tetchytyke]

Sounds a bit like the behaviour at Anderson a few years ago (which led to their downfall)

Andersen Consulting didn’t really fail though, they just changed their name to Accenture. Accenture still get a lot of government consultancy contracts.

The burglar is the offender - but your insurance company might have something to say about fault in terms of the loss sustained!

Very true, although culpability and blame are not the same thing.

Cycles back to my point that the army of compliance and monitoring people are the hidden cost of privatisation that nobody talks about, though. If one has to spend a small fortune on big locks to protect oneself from the efficient private sector walking into the house and nicking the telly, perhaps privatisation isn’t such a good idea after all.

 

[fishwomp]

inserting a charge from their parent company for a licence to apply their branding to the trains (so the tax payer foots the bill for their corporate advertising?). I could go on.

Scratching my virtual beard on who that one could be ...

Then after losing the franchise, companies like Virgin insisted on their branding disappearing immediatelyb(overnight ?) or else legal action to recover the branding fees .. but that is the nature of that company, it is a branding franchise, seldom owning a controlling stake in anything done by its name. IIRC Virgin Trains was majority owned by Stagecoach

 

[Djgr]

Scratching my virtual beard on who that one could be ...

Then after losing the franchise, companies like Virgin insisted on their branding disappearing immediatelyb(overnight ?) or else legal action to recover the branding fees .. but that is the nature of that company, it is a branding franchise, seldom owning a controlling stake in anything done by its name. IIRC Virgin Trains was majority owned by Stagecoach

Indeed. Anyone missing Virgin Cola?!

== Doublepost prevention - post automatically merged: Monday at 12:12 ==

Andersen Consulting didn’t really fail though, they just changed their name to Accenture. Accenture still get a lot of government consultancy contracts.


Very true, although culpability and blame are not the same thing.

Cycles back to my point that the army of compliance and monitoring people are the hidden cost of privatisation that nobody talks about, though. If one has to spend a small fortune on big locks to protect oneself from the efficient private sector walking into the house and nicking the telly, perhaps privatisation isn’t such a good idea after all.

...and another key cost of creating competition in the privatised free market is the cost of marketing and promotion.

Without going off on a complete tangent, have a look at how much money universities now spend on marketing and recruitment.

Whilst a free market may have benefits it comes with major costs. One would like to believe that the benefits are shared but probably they just end up with the 1 percenters.

 

[Tetchytyke]

that is the nature of that company, it is a branding franchise, seldom owning a controlling stake in anything done by its name. IIRC Virgin Trains was majority owned by Stagecoach

And even the airline is 49% owned by Delta.

Anyone missing Virgin Cola?!

tbf Virgin Cola was really nice, much nicer than Coca-Cold or Pepsi at the time.

I was in a minority I know, hence why it doesn’t exist anymore, but I do miss it.

Then after losing the franchise, companies like Virgin insisted on their branding disappearing immediatelyb(overnight ?)

Also to be fair, that’s a condition of the franchises that all branding is removed by the outgoing franchisee. Virgin were very hot on it because it was in their interests too, but it wasn’t the incoming franchisee who had to do it.

 

[Nicholas Lewis]

Thee has been a litany of corporate failures that came out the blue (Carillion, Thomas Cook, BHS, and Patisserie Valerie to name a few high profile ones) despite signed off accounts that ought to warrant a deeper investigation by government as to the adequacy of the self regulation that goes on in that industry.

 

[UBoot]

Train drivers were pilloried in the Daily Telegraph for a:

'decades-long ticket fraud 'cost taxpayer millions'
Nuclear waste transport workers used fake duty rosters to claim free rail journeys'

https://www.telegraph.co.uk/news/2026/08/05/revealed-government-workers-used-ticket-fraud-travel-free/

Lets hope they feature the Deloitte/LSER case in a similar fashion....

UB