Deloitte has been fined £6.05 million ($7.98 million) by Britain’s accounting regulator over failures in its audits of transport operator Go-Ahead Group between 2016 and 2020, including its handling of more than £30 million in public money that was wrongly retained by a subsidiary.
The Financial Reporting Council (FRC) said on Thursday that the penalty related to Deloitte’s audits of Go-Ahead during the five financial years. The regulator originally set the fine at £11 million but reduced it because of Deloitte’s “exceptional cooperation” and admissions during the investigation.
The case centers on overpayments made by Britain’s Department for Transport to London & South Eastern Railway (LSER), a Go-Ahead subsidiary operating under a rail franchise agreement.
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The overpayments were made before Deloitte became Go-Ahead’s auditor. LSER retained the money and did not notify the Department for Transport. The government department eventually discovered the overpayments in 2021 and took steps to recover the funds.
The FRC said Deloitte failed to adequately challenge Go-Ahead’s retention of more than £30 million in public money over an extended period.
“Those breaches show a highly concerning pattern of failure by Deloitte to apply sufficient scrutiny to decisions and actions by (Go-Ahead Group) which were clearly questionable,” said Penrose Foss, the FRC’s executive director of investigations and enforcement.
The findings highlight the responsibilities facing auditors when reviewing companies that manage public contracts and government-backed revenue. While the overpayments occurred before Deloitte took on the audit, the FRC’s findings focus on the firm’s subsequent audit work and whether it sufficiently challenged the company’s treatment of the funds.
Deloitte acknowledged shortcomings in its audit work.
“We regret that aspects of our audit work did not meet the standards expected and have learned from this matter,” a Deloitte spokesperson said. “We are committed to continuous improvement and the delivery of high quality audits.”
The reduction in the fine from £11 million to £6.05 million demonstrates the significance the FRC placed on Deloitte’s cooperation and admissions during the investigation. The enforcement action adds to scrutiny of audit firms’ ability to challenge management decisions, particularly where public funds are involved.
The case also highlights the importance of auditors examining unusual or questionable transactions rather than relying solely on management representations. The FRC’s criticism was not simply that the overpayments had occurred, but that Deloitte failed to apply sufficient scrutiny to Go-Ahead’s decision to retain the money.
The regulator’s findings cover audits for the financial years from 2016 through 2020, while the underlying overpayments were eventually identified by the Department for Transport in 2021. Deloitte did not audit Go-Ahead at the time the original overpayments were made. The enforcement action instead concerns Deloitte’s audit responsibilities after it became the company’s auditor and the firm’s handling of information surrounding the retained funds.
For the UK audit industry, the case underscores the regulatory focus on professional skepticism and the need for auditors to challenge transactions that raise questions about a company’s financial reporting or conduct.
The £6.05 million penalty is also a significant financial consequence for Deloitte, one of the UK’s largest accounting firms. The FRC’s decision to publish detailed findings alongside the fine sends a broader message about the standard expected of auditors when examining the accounts and decisions of major companies.
The Go-Ahead case ultimately centers on more than an accounting error. It concerns whether an auditor sufficiently challenged the continued retention of public money and whether its audit procedures adequately identified and addressed issues that the regulator considered clearly questionable.
The FRC’s enforcement action and Deloitte’s admission that aspects of its audit work fell below expected standards bring the matter to a regulatory conclusion, while the episode is likely to remain relevant to wider debates over audit quality and the oversight of companies handling public funds.