SERCO/G4S SCANDAL STILL SPREADING

In a recent post, I said that the SCERO/G4S electronic monitoring scandal (“this one will run and run” – Serious Fraud Office) had given rise to many scandals, one nesting inside the other, as it were.

Another has come to light. The Financial Reporting Council, regulatory body for accountants, actuaries and auditors, has published findings against Deloittes and two auditors. The findings were of misconduct in:

failing to respond to clear indicators of the risk of potential fraud on a UK Government Department, despite such indicators being visibly set out on the SERCO Geographix audit file (for the years in question)

failing to comply with important audit standards and included failings in relation to identifying the risk of fraud or material misstatement and the exercise of professional scepticism.

These are the accounts which, the SFO alleges, were manipluated so as to enable SERCO to give a false account of the profitability of its electronic monitoring contract to the MoJ.

Deloittes was fined £6.5m and the individuals also fined.  Deloittes was also severely reprimanded and required to put in place extra training.

It perhaps may be a good idea for Deloittes to look for a new trainer, as previous fines and severe reprimands against Deloittes for professional failings in the Aero Inventory and MG Rover cases (2016 and 2015) have clearly not had the desired effect. They were also damned by the House of Commons Select Committees' inquiry into the Carilion collapse. Either Deloittes is out of proper control or it cynically shrugs off such reprimands, severe or not, as the price of doing business. With a turnover of over $40bn, the fines are loose change; as for reputational damage – well, it's not entirely clear that how easy it would be possible to damage Deloittes reputation.

Corruption is contagious. I hasten to add, I am not suggesting used dollar bills were handed over to Deloittes in brown envelopes: it’s clear from the FRC report that is not what happened. But in a way, frank corruption like that is easier to guard again, investigate and deal with. No, what I mean here is a sort of moral contagion: when  one person, or company, decided to cut corners and bend the rules, then other bodies, other companies and individuals adjacent to the wrong  doer, or doing business with it, may well come under pressure to turn a blind eye, not raise awkward questions, in short, not to exercise ‘professional scepticism’.

No such action has occurred in relation to G4S, further evidence that in accounting terms, the two  companies dealt with the issue in different ways, as I noted in my last piece.