The King’s BDO Eats a Nearly £6 Million Fine For Letting a Senior Manager Run Buck Wild

The Financial Reporting Council announced today that BDO across the pond has been hit with a multimillion-pound fine for, in essence, letting a senior manager named Amanda Nightingale throw audit standards out of the window when she worked for BDO from 2015 to 2019. Along with the firm itself, two partners — John Everingham and Kevin Cook — who maybe should have not let this happen also got fines for failing to properly supervise the senior manager while she was wildin’ out falsifying audit evidence and signatures.

Now, what usually happens in these FRC dealings is that the firm and named individuals get a discount on fines for their cooperation with the investigation. In this case, Mr. Everingham exclaimed “fuck that” and got the opposite of a discount at first. FRC levied “a financial sanction of £200,000 increased by 5% to £210,000 to reflect non-cooperation with the investigation (by way of the provision of incomplete and inaccurate information to Executive Counsel) and then reduced to £189,000 after application of a 10% settlement discount.” The FRC doesn’t mention in its news release if Mr. Cook cooperated or not, only that he received a financial sanction of £100,000 reduced to £90,000 after application of a 10% settlement discount.

The firm itself is getting hit with:

• A financial sanction of £6,500,000 reduced to £5,850,000 ($7.7 million USD) after application of a 10% settlement discount;
• A requirement to take all reasonable steps to repay audit fees to entities in respect of audits where unauthorised auditors’ reports were issued by the firm (where the firm has not already done so);
• A Severe Reprimand;
• A report to be provided by BDO to the FRC every 6 months for a period of two years addressing the matters set out in the schedule to the Settlement Agreement; and
• A sum of £716,000 to be paid in respect of the entirety of the FRC’s costs in this matter.

In order to get to the bottom of what happened, we have to go back to this FRC announcement from last year detailing what the BDO senior manager did (or didn’t do):

As set out in the Particulars of Fact and Acts of Misconduct on numerous occasions between 2015 and 2019 the conduct of Ms Nightingale fell severely short of the standards expected of a member of the ICAEW and has brought discredit to herself, BDO LLP, and the accountancy profession in that she:

• caused or permitted auditor’s reports to be issued without approval from the audit engagement partner, including by inserting electronic copies of the signature of the partners responsible for the relevant audits without their authorisation;
• inserted electronic copies of the signatures of the audit engagement partners in other documents, including company accounts which she then filed at Companies House, without their authorisation;
• created false documents, and falsified existing documents, including audit evidence; and
• deceived a number of audit engagement partners and audited entities.

Ms Nightingale acted with sustained dishonesty over a five year period in relation to a large number of audits. Although the audited entities involved were generally smaller, private companies, the dishonesty and scale of Misconduct in this case was extremely serious.

The senior manager earned herself a 20-year ban from accounting so, you know, congrats for that.

In the latest development announced by the FRC today, BDO, Everingham, and Cook are now getting settled for the following:

• BDO’s inadequate response to internal reports which raised or should have raised concerns as to the Senior Manager’s honesty and integrity;
• Deficiencies in BDO’s systems and controls for ensuring adequate audit supervision by engagement partners, and audit quality in the period 2012-2019;
• The failure of Mr Everingham (in the period 2014-2019) and Mr Cook (in the period 2015-2019) to adequately supervise, monitor and oversee 21 and 13 audits respectively, on which the Senior Manager worked, which resulted in each case in an Auditor’s Report being issued without their authority and, in some cases, where inadequate, or no, audit evidence had been obtained;
• Mr Everingham’s issuance of 10 Auditor’s Reports (for financial years ending between 2015-2018) in relation to audits on which the Senior Manager worked, when insufficient audit evidence had been obtained and where it is inferred that he had carried out no, or very limited, review of such evidence (if any) as had been obtained

FRC Deputy Executive Counsel Jamie Symington acknowledges in a quote block that BDO did look into the matter after Nightengale left the firm and reported back to the audit regulator. “We recognise that following the Senior Manager’s departure from BDO in December 2019, BDO conducted an extensive forensic investigation into the Senior Manager’s conduct over the course of the next 15 months and provided a detailed report on its findings to the FRC,” he said. “BDO has since worked to remediate and strengthen relevant systems and controls. As part of this set of sanctions, BDO will report to the FRC for a period of two years on the efficacy of this work, including the control enhancements introduced specifically to prevent any repetition of the misconduct in this case.”

Let’s see what else Jamie had to say in this quote block:

“This case has established that BDO did not have sufficiently robust systems and controls in place from 2012 to 2019 to ensure that audit engagement partners diligently conducted and supervised their audits. These failures gave rise to circumstances in which misconduct could occur and remain undetected. Mr Everingham and Mr Cook were responsible as audit engagement partners for the overall quality of the audits they supervised, and they both adopted a fundamentally flawed approach to this role which involved a serious abrogation of their responsibilities.

The failings admitted by BDO and the two partners enabled the Senior Manager’s dishonest course of conduct to go undetected over several years, thereby undermining the integrity and quality of numerous audits in the relevant period. Even when evidence of the Senior Manager’s misconduct did emerge, the firm failed to take the steps necessary to investigate it, and to protect their clients. The substantial sanctions imposed reflect the extent to which the serious failings established in this case will undermine confidence in audit and the accountancy profession.”

Betcha they don’t let that happen again.

FRC imposes sanctions against BDO LLP and two audit engagement partners [FRC]