Dive Brief:
- The Financial Reporting Council, an independent accounting watchdog in the U.K., fined Deloitte UK $7.9 million (6.05 million pounds) for flawed audits of Go-Ahead Group, a global transport company, during a four year period ending in June 2020, the FRC said Thursday.
- Two subsidiaries of GAG — London & South Eastern Railway (LSER) and London & Birmingham Railway (LM) — retained $39.6 million in erroneous over-payments from the U.K. Department of Transport, the FRC said. Rather than return the payments, the subsidiaries marked them as profits before and after Deloitte was appointed as auditor, the FRC said.
- “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,” FRC Executive Director of Investigations and Enforcement Penrose Foss said in a statement. “The fact that some of those decisions and actions put very large amounts of U.K. taxpayers’ money at risk is particularly troubling, and this is reflected in the high level of financial sanction imposed.”
Dive Insight:
A Deloitte spokesperson said in a statement that the company is committed to “continuous improvement” and to delivering high quality audits.
“Deloitte UK regrets that aspects of its audit work did not meet the standards expected and has learned from this matter,” the spokesperson said.
FRC said it reduced the penalty from $14.5 million noting Deloitte’s “exceptional cooperation” and for its “admissions and early disposal” of the matter.
Deloitte overlooked several key aspects of the contractual relationships between the two GAG railways and the government transport agency, according to the FRC.
The accounting firm “failed to enquire sufficiently into the actions of LSER and LM, failed to apply sufficient professional scepticism and failed to evaluate the evidence indicating the existence of fraud risk factors,” the FRC said.
Also, “Deloitte failed to appreciate that the company was under a contractual obligation to act in good faith and therefore in relation to LSER to bring the overpayments to the DfT’s attention,” the council said.
More broadly, the FRC said in an annual report last month that corporate reporting by FTSE 350 companies continues at a high standard, and that a gap in quality between large publicly traded companies and smaller companies is narrowing.
“The proportion of FRC reviews leading to substantive enquiry letters also fell for the second consecutive year, reflecting a positive trend in reporting quality across the FRC’s risk-based sample,” the council said in a Sept. 29 report.
The “substantive letter write-rate” as a percentage of reviews performed fell to 28% in the 2025-2026 period from 47% in the 2023-2024 period, the FRC said.
