Company auditing EDDC under investigation for “Patisserie Valerie” black hole

“Accountancy firm Grant Thornton is under investigation for its role as the auditor of Patisserie Valerie, the bakery chain which nearly collapsed last month after it discovered a £40m black hole in its accounts.

The Financial Reporting Council (FRC) said it was investigating the audits of the financial statements of Patisserie Holdings – the chain’s parent company – for the years ended 30 September 2015, 2016 and 2017.

The accountancy watchdog said it was also investigating the “preparation and approval” of financial statements by Chris Marsh, the former finance director of Patisserie Holdings who was suspended from the company when the black hole was found in October. Marsh was subsequently arrested on suspicion of fraud and bailed, before resigning from the company.

A spokesman for the FRC said it had moved quickly to consider whether the case required an investigation and that this was just the beginning of a process which could take up to two years to complete.

“The important thing is to do a thorough job and get the right decisions. Investigators could have thousands of emails and different pieces of paper to examine, so it’s not something that can be done quickly,” he said.

Once the FRC has completed the investigation, it will decide whether it has a case against Grant Thornton and Marsh to be presented to a tribunal, which could ultimately lead to a fine or, in the case of individuals, banning them from practising as accountants.

A spokesman for Grant Thornton said: “I can confirm we have received a letter from the Financial Reporting Council informing us of its decision to commence an investigation, and we will, of course, fully cooperate in this matter.” …

https://www.theguardian.com/business/2018/nov/21/patisserie-valerie-accountants-face-black-hole-investigation

EDDC’s auditors (Grant Thornton) in the bad news spotlight again

“… In May, Patisserie Valerie said that it had £28.8m in cash reserves, while half-year profits were 14.2% up on the previous year at £11.1m.

On Thursday, the firm announced that its board had found “a material shortfall between the reported financial status and the current financial status of the business”.

Grant Thornton, which has audited the firm’s accounts since 2010, said it would not comment on Mr Johnson’s revelations to the Sunday Times.” …

https://www.bbc.co.uk/news/business-45854817

“Audit watchdog vows to restore public trust in sector”

Owl says: too late for us. EDDC’s then (and now) external auditor was given a consultancy contract to investigate the ramifications of the Graham Brown scandal:

https://eastdevonwatch.org/2016/03/06/external-auditors-watchdogs-or-bloodhounds/

https://eastdevonwatch.org/2017/11/08/so-guess-who-eddcs-new-external-auditors-will-be/

Maybe the Financial Reporting Council would be interested in this seeming conflict of interest?

“The UK’s audit watchdog has announced a reform programme to restore the public’s “falling trust in business and the effectiveness of audit” after its work showed that high-quality auditing was not being “delivered consistently”.

The Financial Reporting Council will implement a series of measures including increased monitoring and assessment of risks, and scrutiny of the future needs of investors and audit quality.

It will also address auditor independence, including banning accounting firms from providing consultancy work to companies they already audit.

The watchdog plans to work closely with the Competition and Markets Authority (CMA) on this issue.”

https://www.telegraph.co.uk/business/2018/10/08/audit-watchdog-vows-restore-public-trust-sector/

“Audit sector faces inquiry as minister points to deficiencies”

Interesting to note that a large number of people in East Devon have been pointing out deficiencies in internal and external audit foy YEARS!

https://eastdevonwatch.org/2014/09/17/please-dont-take-our-external-auditor-away-why-we-like-him-and-our-ceo-wants-the-same-auditor-at-both-councils-where-he-works/

https://eastdevonwatch.org/2015/01/15/a-question-for-the-swap-internal-auditor/

https://eastdevonwatch.org/2016/11/19/external-auditors-not-best-placed-to-review-local-plan-duh/

“The government has called for a comprehensive review of Britain’s auditing industry in what could herald huge changes to a sector dominated by the firms known as the big four.

Calls for reform have grown after the collapse of the construction giant Carillion and the former high street stalwart BHS revealed serious inadequacies in the auditing process.

The business secretary, Greg Clark, said it was “right to learn the lessons and apply them without delay” as he ordered the inquiry into competition within the industry where Deloitte, PwC, Ernst & Young and KPMG audit 98% of the UK’s largest listed companies.

“The collapse of Carillion exposed deficiencies in an audit process, where the market is dominated by just four large firms,” Clark said, in an interview with the Financial Times.

He added: “We know competition is one of the key drivers for maintaining and improving standards, so I have asked the Competition and Markets Authority to consider looking again at what can be done to improve the audit sector.”

Thousands of jobs were lost following Carillion’s collapse in January, with a subsequent parliamentary report finding that Deloitte – which received £10m to be the outsourcing company’s internal auditor – had been either “unable or unwilling” to identify failings in financial controls, or “too readily ignored them”.

Ernst & Young was paid £10.8m for “six months of failed turnaround advice”. Elsewhere, PwC was fined £10m by the Financial Reporting Council (FRC) for signing off on the accounts of BHS, before its sale for £1. The retailer collapsed in 2016, prompting the loss of 11,000 jobs.

Frank Field, the chairman of the work and pensions committee, said poor business practices were “waved through by a cosy club of auditors, conflicted at every turn”.

The FRC has previously called for an inquiry into whether the big four should be broken up, with their audit divisions spun off. This year, Deloitte warned that such a measure could affect the UK’s standing as a global financial centre.

Labour welcomed the announcement, but claimed the Conservatives were “playing catch-up”. …”

https://www.theguardian.com/business/2018/sep/29/uk-mulls-audit-sector-reform-after-minister-admits-deficiencies

“Grant Thornton [EDDC’s past and present auditor] in record fine as auditing scandal spreads”

“The scandal around City auditors spread beyond the big four on Wednesday as Grant Thornton was slapped with a major fine for serious conflicts of interest with two audit clients.

The Financial Reporting Council fined the professional services firm £4 million, reduced to £3 million after a settlement discount. Three senior staffers and a former partner had admitted misconduct in the handling of financial audits for Vimto drinks-maker Nichols and the University of Salford.

The ex-partner, Eric Healey, was slammed for “reckless” behaviour after taking jobs on the audit committees of Nichols and the university despite continuing to work as a consultant to Grant Thornton after retirement. The accountancy firm continued as auditor to both, creating “serious familiarity and self-interest threats”.

The FRC delivered the damning verdicts five years after it opened the probes, which cover 2010 to 2013.

The £4 million penalty is the largest imposed on an accountancy firm outside of the big four — PwC, KPMG, Deloitte and EY. The costs will come out of partner profits.

It is the latest in a series of reprimands for Britain’s biggest auditing firms — just last week KPMG was fined £3 million for its audits of Ted Baker — as the FRC faces calls to reduce the big four’s dominance.

Healey’s simultaneous engagement with Grant Thornton, Nichols and the University of Salford “resulted in the loss of independence in respect of eight audits over the course of four years,” said the FRC.

It added: “The case also revealed widespread and serious inadequacies in the control environment in Grant Thornton’s Manchester office over the period as well as firm-wide deficiencies in policies and procedures relating to retiring partners.”

Healey, who retired from Grant Thornton in 2009, joined the audit committees of the University of Salford and AIM-listed Nichols in 2010 and 2011 respectively. The former role was unpaid and he got £22,000 per year for the latter.

The FRC said it has issued a £200,000 fine (discounted for settlement to £150,000) to Healey and excluded him from the Institute of Chartered Accountants in England and Wales for five years.

Three senior statutory auditors at Grant Thornton, Kevin Engel, David Barnes, and Joanne Kearns, were reprimanded and fined £75,000, £52,500 and £45,000 respectively (after discount for settlements).

Grant Thornton said: “Whilst the focus of the investigation was not on our technical competence in carrying out either of these audit assignments, the matter of ethical conduct and independence is equally of critical importance in ensuring the quality of our work and it is regrettable that we fell short of the standards expected of us on this occasion. As we have since made significant investments in our people and processes and remain committed to continuous improvement in this regard, we are confident that such a situation should not arise in the future.”

Source: Evening Standard

“KPMG singled out in critical report on audit industry”

KPMG were, until recently, the auditors of East Devon District Council. Let’s hope that Grant Thornton (now back in the frame at EDDC) perform better – but who recalls their pitiful performance when they “investigated” the disgraced Councillor Graham Brown affair and found ….. nothing.

“KPMG, the accounting firm that signed off the books in the years leading up to Carillion’s collapse, has been singled out by the industry regulator in a report that says the overall quality of the audit profession is in decline.

The Financial Reporting Council, the watchdog for the UK’s accountants, said the profession had demonstrated a “failure to challenge management and show appropriate scepticism across their audits”.

There have been calls for the “big four” accountants – KPMG, PricewaterhouseCoopers, EY and Deloitte – to be broken up to spur competition and improve standards.

All four gave Carillion financial advice before the construction and outsourcing company failed. MPs accused the four of “feasting” on Carillion, whose finances proved far less healthy than directors had suggested.

The FRC reported a decline in the quality of the work of all four, with KPMG performing the worst. The watchdog is already investigating KPMG over its role in the collapse of Carillion and it said on Monday there had been an “unacceptable deterioration” in the quality of its work.

The FRC cited figures that showed half of KPMG’s audits of firms in the FTSE350 index had required “more than just limited” improvements, up from 35% in the previous year.

“The overall quality of the audits inspected in the year, and indeed the decline in quality over the past five years, is unacceptable and reflects badly on the action taken by the previous leadership, not just on the performance of frontline teams,” the regulator said.

“Our key concern is the extent of challenge of management and exercise of professional scepticism by audit teams, both being critical attributes of an effective audit, and more generally the inconsistent execution of audits within the firm.”

It added: “[KPMG] agrees that its efforts in recent years have not been sufficient; the FRC will hold KPMG’s new leadership to account for the success of their work to improve audit quality.” …

The FRC said it would now scrutinise KPMG more closely as a result of its findings. It will inspect 25% more KPMG audits than before and monitor the firm’s plans to improve the quality of its work.

In the FRC’s overall assessment of eight accountants, it found that 72% of audits of all firms, including those outside the FTSE350, required no more than limited improvement, down from 78% last year. While only half of KPMG’s FTSE350 audits were deemed satisfactory, rivals scored far higher, although all showed declines and fell short of the FRC’s target of 90%.

Deloitte scored 79%, down from 82% last year, EY fell from 92% to 82% and PwC was down from 90% to 84%. The four firms immediately below the big four – BDO, Mazars, GT and Moore Stephens – were told that the quality of their audits had generally improved.”

https://www.theguardian.com/business/2018/jun/18/kpmg-singled-out-in-critical-report-on-audit-industry

Honiton Town Council slated for poor financial management

“Grant Thornton, who were appointed by the Audit Commission as auditor of the council, found that there have been a number of serious failings in governance and procedures at Honiton Town Council.

The internal audit report revealed that financial systems had not been updated between November 2016 and March 2017, no financial information had been provide to the council for scrutiny since September 2016 and that reserve levels were not being reported to the council.

The report of Mr Morris says that the internal audit report noted that:

The financial systems had not been updated between November 2016 and March 2017 and that only the clerk had the login details of the new finance system

The council did not have adequate contingency plans for key staff being absent, result in the council failing to maintain proper records

At the point of the internal audit review in March 2017 it was noted that due to the financial system not being kept up to date, there had not been any bank reconcillliations completed since September 2016

No financial information had been provided to the council for scrutiny since the October 2016 finance committee meeting

Insufficient information was provided on the assets and liabilities of the council

No amount had been input for the budgeted precept, resulting in the accounts showing the council was budgeting for a £236,000 deficit

Reserve levels were not being report to the council
There was little detail of how the council set its budget and that progress against the budget was not regularly monitored. …”

https://www.devonlive.com/news/devon-news/serious-failings-revealed-damning-report-1439581