A little over a month after being fined more than £2.3 million by the Financial Reporting Council for that whole Patisserie Valerie mess, Grant Thornton got called to the principal’s office once again for audit failures—this time for its 2015, 2016, and 2017 audits of outsourcing company Interserve, which went into administration in 2019.
GT got a £1.3 million fine from the UK’s audit cops on Nov. 1, but it was reduced to £718,250 because of the firm’s “exceptional cooperation in the investigation” and early admissions to audit wrongdoing, according to the FRC, which included:
- A substantial loss provision in the financial statements for FY 2015 and FY 2016 against an ‘Energy from Waste’ contract for the construction of a waste treatment facility. There were serious evidence and scepticism failings by the auditors in respect of key judgements and accounting estimates relevant to the loss provision, an area identified as a significant risk in the audit; and
- Aspects of the auditors’ assessments of going concern and goodwill impairment in the financial statements for FY 2017 (both having been identified, at planning stage, as areas of significant risk for the audit), where work on elements of the analysis of management’s modelling of the financial data was inadequately performed or, in some respects, inadequately documented.
The lead auditor on the Interserve engagement, Simon Lowe, was fined £70,000, but his penalty was reduced to £38,675. According to the Financial Times, Lowe left the partnership at Grant Thornton in June 2018 after 43 years in the profession but remains a consultant at GT. Lowe’s bio on Grant Thornton’s website says he is a consultant in the firm’s Strategic Clients practice and chairman of the Grant Thornton Governance Institute.
The FRC noted in its decision that “there was a significant public interest in the audit” of Interserve’s financial statements because the company “was a large, high-profile business with a number of public-sector clients.”
Interserve, one of the British government’s biggest contractors and a peer of collapsed infrastructure and outsourcing group Carillion, was placed in administration in March 2019 after shareholders rejected a rescue plan to deal with its debts, according to Reuters.
Most of Interserve’s income was from UK government contracts including for the provision of probation services and building schools, hospitals, and offices, FT reported. Claudia Mortimore, deputy executive counsel to the FRC, said in a statement:
“This is a proportionate package of sanctions in respect of failings over three consecutive audit years. It reflects on one hand the seriousness of certain evidence and scepticism failures in FY 2015 and FY 2016, while recognizing that the Adverse Findings were limited to discrete areas of large audits.
We note the exceptional cooperation provided by the Respondents throughout the investigation and this has been reflected in the discount to the financial sanctions. Some of the evidence relevant to this decision is legally privileged and we acknowledge the assistance provided by the administrators of the Company and Interserve Group Limited in agreeing that the material could be used in confidence for the limited purposes of our investigation and any subsequent enforcement proceedings.”
However, the FRC came to the conclusion that none of Grant Thornton’s audit failures resulted in the financial statements being materially misstated.