Grant Thornton has been fined £1.3 million for failures in its audits of Interserve, the outsourcing group that collapsed two years ago.
The Financial Reporting Council also fined Simon Lowe, the partner who led the audits of Interserve, £70,000.
The accounting regulator reduced the fines to £718,000 and £39,000, respectively, for what it called “exceptional co-operation” throughout an inquiry that began in April 2019, a few weeks after Interserve fell into administration. Interserve was ordered to pay investigation costs of £468,000.
The penalties come after a £2.3 million fine handed to Grant Thornton in September for displaying a “serious lack of competence” when auditing Patisserie Valerie, the café chain that went under in January 2019 amid an accounting scandal.
The watchdog also severely reprimanded Grant Thornton and Lowe. He stepped down as a partner in 2018 but remains a consultant at the group. It is understood that Grant Thornton, paid the fine on his behalf.
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A spokesman for Grant Thornton said it was “pleased to now conclude this matter . . . We acknowledge the regulator’s findings that certain limited aspects of our work were below expectations in this instance.
“We have invested significantly in our audit practice since the period in question to drive consistently high quality and are now seeing the positive outcome of this investment.”
Interserve was among the biggest providers to public services in Britain, employing more than 45,000 workers who cleaned and maintained schools, stations and hospitals. Before it went under, it had at least 50 government contracts worth upwards of £2 billion.
It collapsed in the spring of 2019 under the weight of £738 million of debts. It had been battling for a year to secure a rescue, but a financing package agreed by the board was rejected by one of its largest shareholders, forcing the company into administration.
It was bought in a pre-pack deal by its lenders, which wiped out shareholders, including 16,500 retail investors. The rump of the business was bought last summer by Mitie, one of its rivals, which initially agreed to pay £271 million before cutting this to £190 million.
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The FRC inquiry focused on the auditing of Interserve’s 2015, 2016 and 2017 accounts. It criticised Grant Thornton for failing to “exercise sufficient professional scepticism”, particularly when signing off on management expectations of future costs and its ability to recover money from subcontractors.
The regulator found that on one occasion, when trying to work out how much it would cost for Interserve to finish a project, it used a “guesstimate” when coming to its conclusion. However, the FRC did not claim that Interserve’s financial statements had been materially misstated and said that the offences were at “the lower end of the spectrum of seriousness and gravity”.
Claudia Mortimore, deputy executive counsel to the FRC, concluded: “This is a proportionate package of sanctions in respect of failings over three consecutive audit years. It reflects on one hand the seriousness of certain evidence and scepticism failures in 2015 and 2016, while recognising that the adverse findings were limited to discrete areas of large audits.”
