FRC fines Deloitte audit partner £120,000 over misconduct

The Financial Reporting Council (FRC) has fined Deloitte audit partner Ross Howard £120,000 for misconduct in the audit of the financial statements of Serco Geografix Ltd for the year ended 31 December 2012

As well as the fine, which has been discounted for settlement to £78,000, Howard has been severely reprimanded. The FRC investigation, conducted under the accountancy scheme, found he had failed to act in accordance with the fundamental principle of professional competence and due care.

The sanctions against Howard, who admitted the misconduct, follow an earlier FRC settlement agreement with Deloitte in relation to the 2011 and 2012 audits and Helen George, one of its audit partners (in relation solely to the 2011 audit).

Under that agreement, Deloitte was fined £6.5m, reduced on settlement to £4.23m and severely reprimanded, while George was fined £150,000, discounted to £97,500, and severely reprimanded.

The FRC investigation followed Serco Geografix Ltd entering into a deferred prosecution agreement with the Serious Fraud Office relating to a scandal in the provision of electronic tagging services to the Ministry of Justice (MoJ).

Under the deal, the company took responsibility for three offences of fraud and two of false accounting arising from a scheme to dishonestly mislead the MoJ as to the true extent of the profits being made between 2010 and 2013 by its parent company, Serco Ltd, from its contract for the provision of electronic monitoring services. The scheme was designed to prevent the MoJ from obtaining information to which it was entitled and from using this to decrease Serco’s revenues under that contract.

In its settlement with Howard, the FRC said the misconduct involved failing to react to clear indicators of the risk of potential fraud on a UK government department despite such indicators being visibly set out on the Serco Geografix audit file for the 2012 audit.

It also involved failing to comply with important auditing standards and included failings in relation to identifying the risk of fraud or material misstatement and the exercise of professional scepticism.  However, the misconduct was not judged to be dishonest, deliberate or reckless and was not intended to derive financial benefit for the audit partner.

FRC settlement agreement for Ross Howard: 

 

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