A top accountancy firm and one of its accountants have been fined £3.7m after admitting professional misconduct in the auditing of a flagship privatisation company which went bust while running London and Lincolnshire’s fire services.
Grant Thornton and Robert Napper admitted 12 cases of professional misconduct over two years in auditing Assetco which meant it traded while it was really insolvent. Neither the firm nor the accountant made any money themselves out of the deal but shareholders in the company lost millions.
The company won big contracts from London and Lincolnshire fire services in what was seen by the then Tory authorities as a precursor to the widespread privatisation of emergency services.
The Financial Reporting Council (FRC) fined the accountants for a series of professional lapses which allowed directors to take money out of the firm for their own benefit and the benefit of relatives and to fake millions of pounds of income from the London Fire and Emergency Planning Authority to boost the value of the company.
Gareth Rees QC, Executive Counsel to the FRC, said: “The Respondents have admitted widespread and significant failings in their audit work, and GT specifically has accepted there were serious failings in the execution of certain aspects of the firm’s quality control procedures. This misconduct is rightly reflected in the seriousness of the sanctions, such as the exclusion of Mr Napper from membership of the ICAEW ( the accountants professional organisation) and the fines on both Respondents.
“These sanctions will send a strong signal to the audit profession of the importance of upholding high standards of conduct. These sanctions will also serve to protect the public and deter future Misconduct in the audit profession.”
Grant Thornton was fined £3,500,000, reduced to £2,275,000 after they co-operated with council and given a severe reprimand; Mr Napper was fined £200,000, reduced to £130,000 after he co-operated with the inquiry. Grant Thornton also had to pay £200,000 as a contribution to the Executive Counsel’s costs.
A 56 page report by the FRC names three directors of the company who are primarily responsible for overstating the income. The report says however that it could have easily been by the auditors who should have acted to stop it.
One of them John Shannon worked closely with former leader Tory fire authority leader, Brian Coleman to implement the privatisation programme by Assetco.
Two extraordinary claims were never challenged by the accountants which falsely boosted the company’s income. Assetco modified foam pumps to London’s fire engines at a cost of £2.6m to the council charge payer. But its directors also claimed that an additional monthly fee of £46,975 was being paid over the contract which would have netted another £4.991m. As the report says no invoices from the fire brigade were ever made for this – and the money did not exist.
They also replaced thermal cameras for fire engines at a cost of £331,443 per year or £27,620 per month.
But one of the directors claimed that an additional £57,910 was being paid on top of this which was also false boosting revenue by nearly £6m and giving the firm a profit rate of 80 per cent.
The report comments: “As the £57,910 monthly amount did not exist, it follows that the £5,875,614 revenue and related debtor also did not exist.
Matt Wrack, general secretary of the Fire Brigades Union said: “It is mystifying that central government did not spot this scandal, when the Fire Brigades Union and firefighters themselves were warning about it for years. Leading politicians and fire service managers were responsible for allowing a gang of spivs to take over essential equipment and vehicles, the property of the people of London and Lincolnshire. Both of the authorities for these regions need to investigate fully to ensure this never ever happens again.
“It is an utter disgrace that council tax payers have been ripped off in this way, with the life saving equipment they pay for put in the hands of dishonourable outfits whose only concern is how much money they can make. Privatization of public services is morally and socially wrong and, as this case proves, is economically incompetent as well. Outrages such as this case involving AssetCo and their bent accountants have no place in our emergency services.”
Grant Thornton did not want to comment on the fines and did not reply to a request for a comment.