Danny McCance 4 Jul 2019 10:15am

FRC fines Deloitte £6.5m over Serco

Deloitte has been fined £6.5m by the Financial Reporting Council (FRC) after admitting to misconduct in relation to its audit of outsourcing company Serco Geografix

Deloitte audit engagement partner Helen George has also been fined £150,000 for misconduct.

Deloitte was severely reprimanded for its audit work on the 2011 and 2012 Serco financial statements, while George was severely reprimanded just in relation to the 2012 audit.

The FRC opened its investigation in 2016 after receiving information from the Serious Fraud Office (SFO) in relation to an investigation it was conducting on Serco’s electronic monitoring contracts.

According to the FRC, Deloitte and George “failed to act in accordance with the Fundamental Principle of Professional Competence and Due Care”.

A Deloitte spokesperson said that the firm recognises and regrets that its audit work on Serco at the time in question was below the professional standard expected of it.

“We have a programme of continuous improvement for our audit quality processes, which have evolved significantly since these audits were performed,” they said, adding that the firm has “specifically agreed with the FRC certain actions focussed on learning lessons from the shortcomings in this audit work”.

The FRC said that in addition to the sanctions the firm agreed to a training programme for its entire audit staff, which has been “designed to the satisfaction of the FRC”.

It reached a settlement with the FRC and will pay a reduced fine of £4,225,000 while George’s fine was discounted to £97,500.

Deloitte will also pay £300,000 towards investigation costs.

This settlement was agreed by its executive council on 7 January and later approved by a member of the Independent Tribunal Panel.

Yesterday, Serco agreed to pay £19.2m plus costs to the SFO under a deferred prosecution agreement relating to three offences of fraud and two of false accounting.

The offences arose from a scheme to dishonestly mislead the Ministry of Justice about the true extent of the profits being made by its parent company Serco Ltd, between 2010 and 2013, from its contract for the provision of electronic monitoring services.