In hockey if you get penalized for misconduct, you spend the next 10 minutes in the penalty box and feel shame. In auditing if you get penalized for misconduct, you pay some slap-on-the-wrist fine from a regulator, vow to be better next time, and go on your merry way.
The Queen’s Grant Thornton is the latest firm to pay a slap-on-the-wrist fine from the Financial Reporting Council for misconduct related to really screwing up on ethics and independence requirements in its audit of Conviviality Retail PLC.
Grant Thornton had a former manager first audit the finances and then prepare the accounts for Conviviality Retail PLC, a liquor store chain that went into receivership in 2018. The regulator ruled that it resulted in a breach of independence.
Grant Thornton was handed a £3 million ($3.8 million) fine and a severe reprimand by the regulator. The fine was reduced to £1.95 million because the firm admitted to the findings, the FRC said Wednesday.
Former audit engagement partner Kevin Engel and former senior manager Natasha Toy were both reprimanded. Mr. Engel was banned from signing future audit opinions, the FRC said.
So what kind of shenanigans did Engel and Toy attempt to pull? According to WSJ:
Grant Thornton, the former auditor for Conviviality in 2014, assigned Ms. Toy to help the company with preparing its financial accounts. She previously was involved with auditing Conviviality’s financial statements for the year ended April 30, 2014, resulting in a loss of independence, according to the FRC.
Mr. Engel, the audit engagement partner who instructed Ms. Toy, also asked her to remove four-and-half hours recorded as audit work to hide evidence about her involvement in the audit and the subsequent preparation of financial statements, the FRC said.
So as a result, the FRC in a press release deemed GT’s policies and procedures to ensure compliance “defective, inadequately implemented and monitored.” And the FRC continued to pile on GT:
The firm failed to take responsibility for ensuring an appropriate control environment that placed adherence to ethical principles and compliance with ethical standards and requirements above commercial considerations … ; it failed adequately to resource its Ethics team; and it did not have an appropriate enforcement regime whereby individual breaches of Ethical Standards were identified. The failures were repeated and prolonged (over a course of three years [2014 to 2017]) and resulted in numerous breaches of ethical standards and requirements by the firm’s partners and staff.
Neither Engel nor Toy were fined. And both of them no longer work for GT.
In addition to the fine, Grant Thornton was ordered to:
- Establish an ethics board to oversee the firm’s compliance with ethical standards and requirements. The board must provide reports to the FRC for three years.
- Review its ethics function to identify any skills/resource gaps.
- Increase training to staff on relevant ethical issues.
- Improve the firm’s policies and procedures to ensure compliance with ethical standards and requirements.
Now go sit in the penalty box and feel shame, Grant Thornton.
Grant Thornton, Former U.K. Executives Sanctioned for Misconduct [Wall Street Journal]