Deloitte fined £11m by the FRC for failing to challenge £30m in wrongfully retained taxpayer funds during audits of transport group Go Ahead.

Deloitte fined £11m over audit failures at transport group Go Ahead

Accountancy firm Deloitte has been hit with an £11m penalty by the Financial Reporting Council after failing to identify fraud and raise concerns during its statutory audits of passenger transport operator Go Ahead Group.

The fine was discounted to £6.05m following early admission of liability and co operation with the investigation. The Financial Reporting Council said on Thursday that the sanction relates to Deloitte's audit work covering the 2016 to 2020 financial years.

Go Ahead Group was a listed business on the London Stock Exchange during the period under review. It operates bus and rail contracts across the UK, serving as London's largest bus operator running around a quarter of the capital's bus fleet for Transport for London, including services on the Elizabeth Line.

Regulators identified serious audit failures across three rail subsidiaries operated by the group: London and South Eastern Railway Ltd, London and Birmingham Railway Ltd, and Go Ahead Bayern GmbH.

The Financial Reporting Council found that Deloitte failed to exercise sufficient professional scepticism, repeatedly accepting explanations from company management without adequate challenge. Across the three units, Deloitte failed to recognise that the company had wrongfully retained more than £30m in taxpayer funds by keeping overpayments owed to the Department for Transport.

Alongside the financial penalty, Deloitte received a severe reprimand. The regulator ordered the firm to pay the full costs of the investigation and prepare a detailed report for its Financial Reporting Council supervisor explaining why the failures occurred.

"These breaches show a highly concerning pattern of failure by Deloitte to apply sufficient scrutiny to decisions and actions by GAG which were clearly questionable. The fact that some of those decisions and actions put very large amounts of UK taxpayers’ money at risk is particularly troubling, and this is reflected in the high level of financial sanction imposed," said Penrose Foss, executive counsel and executive director of investigations and enforcement.

A spokesperson for Deloitte UK responded: "We regret that aspects of our audit work did not meet the standards expected and have learned from this matter. We are committed to continuous improvement and the delivery of high quality audits."

Joules audit investigation closed

In a separate update on Thursday, the Financial Reporting Council confirmed it has dropped an investigation into Deloitte regarding its audit of British lifestyle retailer Joules Group.

The regulatory probe was launched in May 2023 following the collapse of Joules into administration in late 2022. Investigators examined Deloitte's audit work for the financial year ended 30 May 2021.

Joules was founded by Tom Joule and entered administration on 16 November 2022. Retail group Next subsequently partnered with Tom Joule a month later to acquire the company out of administration in a deal valued between £34m and £41m.

Following a review of the evidence and relevant factors, the Financial Reporting Council concluded its investigation without taking enforcement action against Deloitte.

Source: City A.M.