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10 Jan 2014 10:01am

PwC finds £200m hole in RSA finances

RSA is facing a possible fine of £35m following the discovery of a £200m hole in its Irish finances

An independent report from PwC into accounting irregularities at the FTSE 100 insurer has found "inappropriate collaboration" among managers that led to the hole.

RSA’s Irish subsidiary remains the subject of an investigation by the Central Bank of Ireland (CBI) over the shortfall. The Irish regulator can fine up to 10% of annual sales, which would amount to approximately £35m

The fallout from the problems, which led to a profit warning last year, has resulted in the resignation of chief executive Simon Lee. Yesterday saw the dismissal of finance chief, Rory O'Connor, and the division's claims director, Peter Burke. Irish chief executive Philip Smith has also resigned after being suspended.

Martin Scicluna, RSA executive chairman, who spent 34 years at Deloitte and chaired the Big Four firm in the UK from 1995 to 2007, said in a statement, “The issues which emerged in our Irish business in 2013 were completely unacceptable and I have made it my personal priority to ensure that this never happens again. The Board is now confident that the financial and claims irregularities were isolated to Ireland and do not reflect the quality of our control framework elsewhere in the world.

“Our investigations have confirmed that the claims irregularities in Ireland were, in large part, the result of deliberate collaboration between a small number of executives there. These actions do not reflect the culture, ethos and values of our business that have served us well. We acknowledge that there are lessons to be learnt and we are tightening elements of our Control and Financial Framework in response to these events."

The report indentified weaknesses in the implementation of the large loss claims policy and financial control practices. PwC said there was “inappropriate accounting for net earned premium and pipeline earnings”.

PwC reviewed electronic documents of 60 individuals and identified evidence to support the group board’s view that there had been “inappropriate collaboration involving a small number of senior executives in Ireland”.

In April last year RSA shareholders raised concerns over fees paid to Deloitte for non-audit work. They questioned the auditor's independence after the company revealed it had paid £10m to Deloitte for tax advice and management consulting, compared with £6m in auditing fees.

RSA has since replaced Deloitte as auditor with KPMG.

Raymond Doherty

 

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