Big Four: KPMG PWC Deloitte E&Y fraudulent audit Mafia

[TonyGosling]

'Big 4' accountancy firms are price-fixing mafia

Raw dealing
The claims of professional ethics may provide a veneer of respectability for major accountancy firms, but their practices reveal the truth.
http://commentisfree.guardian.co.uk/prem_sikka_/2007/05/raw_dealing.ht ml

May 30, 2007

Accountancy firms are the new masters of the universe shaping audits, accounting, accountability, corporate governance, taxation, insolvency, consultancy, railways, the NHS, Private Finance Initiative (PFI), government departments and much more.
The world of accountancy is dominated by just four secretive accountancy firms: PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young and KPMG, although their might is now being challenged by mid-tier firms such as Grant Thornton. The Big Four's combined global income of $80bn is greater than the gross domestic product of many nation states. They are controlled by secret trusts headquartered in offshore tax havens (Bermuda and Switzerland), which do not have multilateral information sharing treaties with other countries. Despite appealing to codes of ethics, profit-hungry accountancy firms are engaged in a race to the bottom. A few examples would help to illustrate the issues.
In the year 2000, the Italian competition authority fined the then Big Six accountancy firms for operating an illegal cartel. Their secret agreements included fixing prices and deciding in advance the firm that would win any auditing contracts. More recently, the Big Four firms, plus Grant Thornton, got together to challenge the French government over its law barring accountancy firms from auditing a company's accounts if they have provided advisory services to the client in the past two years. The same firms are planning to make further joint challenges to the French law. The UK government has shown no interest in investigating the practices of major firms.
Around the world, some $2.5 trillion is estimated to be laundered each year. An early indication of the involvement of accountants is provided by the UK high court judgment in the case of AGIP (Africa) Limited v Jackson & Others (1990) 1 Ch 265et seq. The judgment noted that:
"Mr Jackson and Mr Griffin are professional men. They obviously knew they were laundering money ... It must have been obvious to them that their clients could not afford their activities to see the light of the day. ... [They] were introduced to the High Holborn branch of Lloyds Bank Plc in March 1983 by a Mr Humphrey, a partner in the well-known firm of Thornton Baker [this is now part of Grant Thornton]. They probably took over an established arrangement. Thenceforth they provided the payee companies ... In each case Mr Jackson and Mr Griffin were the directors and the authorised signatories on the company's account at Lloyds Bank. In the case of the first few companies Mr Humphrey was also a director and authorised signatory. "
Despite the very strong court judgment, there has been no investigation by any UK government department, regulator or professional body.
Tax avoidance is a huge money-spinner for accountancy firms. The US government is estimated to be losing nearly $300bn of tax revenues each year. The US Senate committee on governmental affairs (pdf) investigated the activities of KPMG and after examining the firm's internal documents concluded (page 4 of the report) that the firm:
" ... devoted substantial resources to, and obtained significant fees from, developing, marketing, and implementing potentially abusive and illegal tax shelters that US taxpayers might otherwise have been unable, unlikely or unwilling to employ, costing the treasury billions of dollars in lost tax revenues".
The Senate hearings found that to secure competitive advantage senior officials at the firm had decided not to comply with the law requiring them to register avoidance schemes with the tax authorities. One internal document, mentioned on page 13 of the Senate report (pdf), noted that:
"Based upon our analysis of the applicable penalty sections, we conclude that the penalties would be no greater than $14,000 per $100,000 in KPMG fees ... For example, our average ... deal would result in KPMG fees of $360,000 with a maximum penalty exposure of only $31,000".
Through such strategies KPMG received more than $120m in fees while the US treasury lost billions in tax revenues.
Subsequently, the US department of justice charged (pdf) the firm with criminal conduct. The firm admitted such conduct and paid a fine of $456m. Several KPMG (now ex) partners are facing what the US department of Justice described as "the largest criminal tax case ever filed". In March 2006, one of its ex-partners told a court, "I willfully aided and abetted the evasion of taxes". Other major firms and their partners are also facing lawsuits for selling questionable tax avoidance schemes.
The US methods for selling tax services also appear to be used in the UK. For example, a Tax Tribunal heard (pdf) that KPMG cold-called clients to sell a VAT avoidance scheme. The scheme was found to be unlawful and the firm appealed to the European court of justice, which declared it to be "unacceptable". Accountancy firms continue to sell dubious tax avoidance schemes (pdf). A partner of a mid-tier firm was bold enough to say: "no matter what legislation is in place, the accountants and lawyers will find a way around it. Rules are rules, but rules are meant to be broken". The UK is estimated to be losing between £97bn and £150bn of tax revenues each year. Yet neither the Treasury nor any select committee has launched an investigation into the practices of major firms.
In 2001, the New York district attorney told a US Senate committee that:
"In 1996 my office concluded a case involving the bribery of bank officers in US and foreign banks in connection with sales of emerging markets debt, transactions that earned millions for the corrupt bankers and their co-conspirators. In this case, a private debt trader in Westchester County, New York, formerly a vice president of a major US bank, set up shell companies in Antigua with the help of one of the "big-five" [these are now part of the Big Four firms] accounting firms; employees of the accounting firm served as nominee managers and directors.
The payments arranged by the accounting firm on behalf of the crooked debt trader included bribes paid to a New York banker in the name of a British Virgin Islands company, into a Swiss bank account; bribes to two bankers in Florida in the name of another British Virgin Islands corporation and bribes to a banker in Amsterdam into a numbered Swiss account".
Successive UK governments have failed to commission any independent investigations into the real or alleged audit failures at Polly Peck, Bank of Credit and Commerce International (BCCI), Levitt Group of Companies, The Accident Group, Resort Hotels, or the UK parts of the Enron, WorldCom, Ahold, Parmalat, WestLB, Hollinger and Xerox episodes. In other countries, the regulators are becoming more concerned. The US securities and exchange commission (SEC) fined PricewaterhouseCoopers for persistent violation of auditor independence rules. Ernst and Young (E&Y) were prosecuted for persistent violations of auditor independence rules.
In April 2004, a 69 page court judgment (pdf) stated: "EY committed repeated violation of the auditor independence standards by conduct that was reckless, highly unreasonable and negligent ... They were committed by professionals throughout the firm, who exhibited no caution or concern for rules on auditor independence in connection with business relationships with an audit client ... EY partners acted recklessly and negligently in committing wilful and deliberate violations of well-established rules ... "
The firm was banned for six months from securing any new audit clients and put on probation for three years.
In another case, a US judge banned a Deloitte & Touche partner for life for audit failures at Adelphia. The judge ruled that among other things the audit partner bowed to pressure from the company, which didn't want to disclose the full amount of money it co-borrowed with businesses owned by its founders.
In September 2005, four accountants at the Japanese firm ChuoAoyama PricewaterhouseCoopers were arrested for allegedly helping Kanebo executives falsify accounting reports and conceal losses of nearly £1bn. After further investigations the Japanese regulators suspended the firm's statutory auditing operations for two months. This effectively haemorrhaged the firm's operations. It subsequently reinvented itself by forming another organisation.
The above is only part of the mounting evidence that raises concerns about the activities of major accountancy firms and highlights the need for UK regulators to intervene.

[TonyGosling]

KPMG, Deloitte, Ernst & Young and PricewaterhouseCoopers hit back as probe attacks audit ‘closed club’
Mark Leftly - Friday 22 February 2013
http://www.independent.co.uk/news/business/news/kpmg-deloitte-ernst--y oung-and-pricewaterhousecoopers-hit-back-as-probe-attacks-audit-closed -club-8507238.html
The Competition Commission has found that the audit market has “systemic” issues that have led to a closed club of the Big Four accountants dominating the sector.
Senior figures at KPMG, Deloitte, Ernst & Young and PricewaterhouseCoopers have reacted angrily to the findings of Laura Carstensen, the commission’s inquiry chairman, that the market is suffering from a lack of competition. Between them, the Big Four run the numbers of more than 95% of the FTSE 350, a market worth almost £800 million in fees.
After 16 months of investigation, Carstensen’s provisional report says corporates should be compelled to re-tender audit work more regularly. They could also be forced to change their auditor every seven, 10 or 14 years, depending on further findings during consultation, and prohibit loan terms that specifically say a Big Four auditor must be used on the accounts.
Carstensen told the Evening Standard: “This is systemic. There’s a stickiness in the market — the fact is that companies stick with an audit firm for decades, which can potentially lead to quality issues. There would be price benefits from switching around.”
The commission also wants audit committees and shareholders to have more of a say than management over who runs the rule over company accounts and the fees that they are paid. “Management interests might diverge from shareholders — they would want to present things in a favourable light while shareholders might want warts-and-all accounts,” she added.
Richard Sexton, PwC’s head of reputation and public policy, dismissed this argument, saying: “We believe that the Competition Commission has grossly underestimated the critical role that audit committees play in protecting the interests of shareholders.”
Ernst & Young denied the audit market was failing to serve shareholders, saying it believed “competition between audit firms is healthy and robust, and that the evidence supports this”.
Mid-tier accountants have long called for reform, with BDO, Grant Thornton and Mazars among the most vocal. BDO senior audit partner James Roberts said: “Although these findings are game-changing, I don’t see a landslide of work coming our way soon.”
However, Roberts believes the reforms could mean the Big Four’s hold of the FTSE 350 market will slide to as low as 80% within five years. The commission’s final report is due in August.

[TonyGosling]

When banks make loans they have been stipulating that whoever takes the loan must be audited by the big 4 crooks!

"prohibition of ‘Big-4-only’ clauses in loan documentation"
http://www.competition-commission.org.uk/media-centre/latest-news/2013  /Feb/audit-market-not-serving-shareholders

[TonyGosling]

My contacts tell me KPMG are the worst of the big four croked 'financial services' firms
KPMG faces possible audit inquiry over HBOS failure
KPMG is facing a possible investigation by the accounting watchdog into its audit of HBOS, the failed lender that a parliamentary commission last week claimed would have gone bust even without the financial crisis.
By Philip Aldrick, and James Kirkup
Telegraph - 08 Apr 2013
Although the Big Four accounting firm was not criticised by the Parliamentary Commission on Banking Standards, the damning report revealed HBOS was carrying £47bn of losses when rescued by the taxpayer despite getting a clean bill of health from KPMG.
In HBOS’s corporate arm alone, KPMG cleared management’s decision to set aside just £370m in provisions in May 2008, when the final divisional losses ended up being £25bn.
In light of the findings, the Financial Reporting Council said it would review both the commission’s report and the conclusions of the Financial Services Authority’s upcoming review into HBOS’ collapse, “to see whether there is a case for an investigation under our powers”.
“We continue to monitor the situation,” a spokesman said. “There isn’t an official investigation currently”.
The parliamentary report was highly critical of the HBOS management’s “reckless” stewardship, prompting calls for ex-chief executive Sir James Crosby to lose his knighthood and return some of his £570,000 annual pension.
David Cameron yesterday refused to intervene over Sir James’ honour, despite pressing for former Royal Bank of Scotland boss Fred Goodwin to lose his knighthood last year. His spokesman said: “The Prime Minister’s very clear view is that it is a matter for the Forfeiture Committee.”
MPs have also demanded Sir James hand back some of his pension.
The critical Commission report has led to Sir James quitting as an adviser to private equity firm Bridgepoint and his tenure as Compass’s senior independent director is looking increasingly shaky after the contract caterer refused to back him. He has also stepped down as treasurer of Cancer Research UK.
Concerns about KPMG’s audits will raise further questions about John Griffith-Jones’ position as chairman of the Financial Conduct Authority, which has taken over responsibility for the HBOS report following the FSA’s disbanding last week. Mr Griffith-Jones was chairman of KPMG during the years it audited HBOS and, as a former partner, would be liable for claims against the firm.
At a September FSA board meeting last year, attended by Mr Griffith-Jones, then deputy chairman, the watchdog decided not to investigate KPMG. The FSA “would take account of input from the auditors but not review their work nor seek to opine on relevant accounting standards and their application”.
Mr Griffith-Jones declared “he was previously employed by KPMG” at the meeting, but one corporate governance expert said he should not have been involved in the decision at all.
An FCA spokesman said Mr Griffith-Jones “does not sit on the FCA sub-committee which is tasked with overseeing the HBOS report”. She added it “not responsible for regulation of auditors. We will look at the factual input of auditors in areas such as provisioning and ask questions where appropriate.”
A KPMG spokesman said: “We stand by the quality of our audit work.”
http://www.telegraph.co.uk/finance/economics/9979995/KPMG-faces-possib le-audit-inquiry-over-HBOS-failure.html

[TonyGosling]

Big Four accountancy firms 'too close to company bosses'
The Competition Commission's report on how KPMG, PwC, Ernst & Young and Deloitte audit 90% of businesses is due
David Feeney - The Guardian, Friday 22 February 2013
http://www.guardian.co.uk/business/2013/feb/22/big-four-competition-co mmission-report
The bosses of Britain's largest companies are too close to the "Big Four" accountancy firms which carry out the overwhelming majority of audits, a report is expected to say on Friday.
The Competition Commission's review into how KPMG, PwC, Ernst & Young and Deloitte audit 90% of UK-listed blue chip businesses is expected to say that while it found no evidence of collusion between them, there is a restricted amount of competition.
It is expected to attack the cosy relationship between auditors and senior management at City firms, who are often alumni of the Big Four themselves.
High-ranking members of Big Four firms also sit on many company boards.
It will reportedly not seek the break up of these firms – which also provide a wide range of non-audit services to their clients – but suggest measures to reduce their stranglehold over the UK's largest firms, including a ban on "Big Four-only" clauses in loan documents from banks and giving shareholders a greater say in the choice of auditors.
Firms could also be ordered to rotate between auditors and invite other firms to tender for work on their accounts.
The investigation, ordered in 2011, was partly prompted by a House of Lords inquiry which found that listed companies, which must have their annual reports signed off by an auditor, use the same accountant for an average of 48 years, a figure the Big Four dispute.
The fear is that auditors become less sceptical over time about what clients tell them.
There was also anger that accountants gave banks a clean bill of health just before taxpayers had to rescue them during the financial crisis....



Criticism as SEVEN watchdog members set to investigate KPMG are revealed as current and former employees
By James Salmon - PUBLISHED: 22:38, 19 April 2013 | UPDATED: 22:38, 19 April 2013
http://www.thisismoney.co.uk/money/news/article-2311821/Criticism-SEVE N-watchdog-members-set-investigate-KPMG-revealed-current-employees.htm l?ito=feeds-newsxml
Seven senior members of the watchdog braced to investigate KPMG’s role in the collapse of lender HBOS are current or former employees of the accounting giant.
The revelations have raised fresh questions over the independence of the Financial Reporting Council (FRC). It is poised to investigate KPMG if a separate report into HBOS’s downfall uncovers evidence that the accountant failed to vet HBOS’s finances properly.
KPMG signed off HBOS’s decision to set aside just £370million for bad loans to firms in the summer of 2008. Lloyds, which rescued HBOS, went on to rack up £46billion of losses from loans made by its corporate division................


The fallout from last week's report also continued to engulf the auditor KPMG, whose reputation was dealt another blow when the accounting regulator confirmed that it was considering investigating the Big Four accountant's audit of HBOS in the lead-up to the bank's collapse.
KPMG suffered its third major setback in less than 24 hours, having already been forced to resign as auditor of Herbalife and Sketchers in the US following an insider trading scandal.
The Financial Reporting Council said it was "monitoring the situation closely". The watchdog said it would take a final decision once a separate report on HBOS by the Financial Conduct Authority was published later this year. In response KPMG said: "We stand by the quality of our audit work at HBOS."
http://www.independent.co.uk/news/business/news/number-10-turns-up-pre ssure-on-hornby-over-hbos-8567969.html

[TonyGosling]

'Big four' accountants 'use knowledge of Treasury to help rich avoid tax'
http://www.guardian.co.uk/business/2013/apr/26/accountancy-firms-knowl edge-treasury-avoid-tax
Experts offering advice on legislation they helped to create is 'ridiculous conflict of interest', says select committee chair Margaret Hodge


BBC manager Tim Pemberton using fraud suspects KPMG to do their business news: Friday Drivetime - BCfm's weekly politics show presented by Tony Gosling
http://vimeo.com/65929261

http://www.bcfmradio.com/2013/05/03/17/friday-drivetime-120/29198
Green Councillor Daniella Radici, Martin Summers and Tony Gosling discuss Financial services firm KPMG who have been given a slot on BBC Radio Bristol 'volunteering' a 7:30am 'business news' for the BBC Breakfast show but failing to reference a pro-Coalition government report talking up the economy promising 200,000 jobs about to come to Britain, but who wrote this report and why have the BBC given up their editorial independence? KPMG have a terrible track record and are embroiled in several scandals including criminal insider dealing in the US, falsifying the accounts of HBOS, undervaluing HBOS junk assets by 7000% just before the 2008 crash and are being investigated by the UK Competition Commission for price fixing with the other 'big four' financial services firms.
http://www.usatoday.com/story/money/business/2013/04/11/herbalife-kpmg -london-shaw/2074607/
http://www.ibtimes.co.uk/articles/455643/20130410/kpmg-pric-hbos-skech er-herbalife.htm
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/998441 2/Scandal-hit-KPMG-could-face-probe-over-HBOS-audit.html

[TonyGosling]

Questions for KPMG over audit of troubled Co-op Bank after accountancy firm failed to spot impending financial turbulence

By Ruth Sunderland

PUBLISHED: 22:44, 28 May 2013 | UPDATED: 22:44, 28 May 2013
http://www.thisismoney.co.uk/money/news/article-2332377/Questions-KPMG -audit-troubled-Co-op-Bank-accountancy-firm-failed-spot-impending-fina ncial-turbulence.html

KPMG is facing scrutiny by accountancy watchdogs over its audit of the Co-op Bank.

The Financial Reporting Council is already considering whether to mount an investigation into the firm over its role at HBOS. In both cases, KPMG failed to spot any signs of looming disaster, despite earning millions of pounds in fees.

It was paid £7.4million by the Co-op last year, including £3.3million for ‘corporate finance services’ relating to the mutual’s doomed attempt to buy more than 600 branches from Lloyds bank in a deal known as Project Verde.


Quids in: KPMG argues that its audits were 'robust' and followed all relevant professional standards

The Big Four accountant also undertook work for the Co-op related to its takeover of Britannia building society in 2009. This is understood to have been on the retail mortgage book and not on the corporate loans that have now saddled Co-op with huge potential losses.

The FRC, the main audit regulator, says it is ‘monitoring’ the situation at both Co-op and HBOS. No official investigation has been launched.

In a worst case scenario for an audit firm, the watchdog can recommend restrictions that could include a ban on auditing financial services companies. Questions over the audit of the troubled Co-op Bank add to the woes of former KPMG chairman John Griffith-Jones (pictured above), who is facing calls to quit his new job as chairman of consumer finance regulator the FCA due to perceived conflicts of interest over HBOS.

More...
State-backed RBS 'grooming incoming finance director Nathan Bostock' to take over boss seat from Hester
Crisis-hit Co-op hires new £1m a year banking boss


Tim Bush of shareholder group Pirc, said: ‘The financial problems of Co-op Bank raise further questions not only about the conduct of the auditors but whether it is appropriate for Mr Griffith-Jones to be head of the Financial Conduct Authority.’

The firm acted as auditor to a string of failed financial sector firms including Bradford & Bingley in the UK, and Countrywide, New Century, Wachovia and Fannie Mae in the US.

The FRC is also investigating it over its audit of car dealership Pendragon. In the US, it recently quit the audits of shoe firm Skechers, as well as into Herbalife after the FBI launched a probe into insider trading allegations involving a former senior partner.

KPMG said its audits of Co-op Bank and group were ‘robust’ and followed all relevant professional standards.

It added that it highlighted a number of risks in the most recent accounts published in March. ‘Based on this publicly available information, a number of credit ratings agencies chose to downgrade the company’s rating.’

[TonyGosling]

Shameless, bungling - the tax boss who's sullied the civil service

By Andrew Pierce

PUBLISHED: 23:39, 28 May 2013 | UPDATED: 00:08, 29 May 2013
http://www.dailymail.co.uk/debate/article-2332364/ANDREW-PIERCE-Shamel ess-bungling--tax-boss-whos-sullied-civil-service.html

As the most powerful mandarin at HMRC (Her Majesty’s Revenue and Customs), Dave Hartnett had a duty to be scrupulously impartial in his dealings with the powerful multi-nationals whose tax files came across his desk.

But his ‘sweetheart’ deals over lavish lunches and dinners with firms such as Goldman Sachs and Vodafone allowed them to cut millions of pounds off their tax bills.

Historically, companies in dispute with HMRC over the size of their tax bills would go to independent tribunals or the High Court, which would adjudicate on the right amount to be paid — a procedure that could take several years and cost the firms millions of pounds in legal fees.


Dave Hartnett's 'sweetheart' deals over lavish lunches and dinners with firms such as Goldman Sachs and Vodafone allowed them to cut millions of pounds off their tax bills

But Hartnett decided to take matters into his own hands. He personally agreed deals with the multi-national companies, allowing them to escape with massively reduced payments.

Every hard-working, tax-paying Briton will be outraged by the disclosure that Hartnett (who was forced to retire early) has now landed a top job with a leading accountancy firm that has been at the centre of tax avoidance allegations.

Indeed, his new job speaks volumes about just how out-of-touch many public sector grandees have become from the realities of everyday life.

For Deloitte was one of four of Britain’s biggest accounting firms whose executives told a Commons committee earlier this year that they were ‘proud’ of helping companies avoid UK tax.

More...
'Doesn't it make you sick?': MP's fury as ex-boss of HMRC lands job with firm accused of helping Starbucks avoid tax
Goldman Sachs 'sweetheart' tax deal with HMRC will stand as UK Uncut fails in court challenge
Goldman Sachs 'was let off £20m tax bill when it signed up to Government's flagship scheme to prevent embarrassing Osborne'


The firms’ bosses explained how they advised wealthy corporate clients to use offshore havens and legal loopholes — earning the accountants themselves more than £2 billion a year.

With his bombastic manner and trademark thatch of untidy greying hair, Dave Hartnett, 62, ruled HMRC as Permanent Secretary from 2008 with an iron fist.

Ignoring a series of expert committees made up of academics and lawyers who had advised the Revenue for years, he created his own brand of tax collection by thrashing out those ‘sweetheart’ settlements in what became known as the ‘meals for deals’ affair.

His preferred venues for such negotiations included The Savoy and the London Hilton on exclusive Park Lane.


Hartnett has now landed a top job with leading accountancy firm, Deloitte, whose executives told a Commons committee earlier this year that they were 'proud' of helping companies avoid UK tax

It was revealed that Hartnett accepted corporate hospitality on 107 occasions (dining 27 times at the tables of the ‘big four’ accounting firms). It led to stinging criticism from MPs for him creating ‘far too cosy a relationship between HMRC and large companies’.

Margaret Hodge, the no-nonsense Chairman of the Commons’ Public Accounts Committee, said at the time: ‘Had I, as a minister, done that with organisations I was doing business with, I would have been on the front of the Daily Mail and pushed out of my job.’

Giving evidence to the same committee in the autumn of 2011 about the ‘meals for deals’, Hartnett was tetchy and bad-tempered.

Under unusually harsh questioning from MPs, he was tackled about his dealings with Goldman Sachs — which was let off a £20  million tax bill after the investment bank agreed to sign up to the Government’s flagship tax reforms.

Hartnett told the committee: ‘I do not deal with Goldman’s tax affairs.’

Yet he then admitted he had been entertained at the investment bank for supper and had, the previous year, assisted two of his colleagues ‘with a difficult relationship issue’ connected to the bank.


Hartnett accepted corporate hospitality on 107 occasions. Margaret Hodge, said at the time: 'Had I, as a minister, done that with organisations I was doing business with, I would have been on the front of the Daily Mail and pushed out of my job'

The committee would subsequently accuse him of providing misleading evidence.

Tory MP Jesse Norman wrote: ‘In earlier testimony, Dave Hartnett told me that the Revenue never charged less than the tax owing — Goldman Sachs shows this to be false.

‘He also said he could not recall seeing an example of tax evasion by a very big business. But who needs to evade tax when the Permanent Secretary is available to do private deals?’

Hartnett had also told a previous committee chairman, Edward Leigh, it was illegal for him to reveal details on cases such as Goldmans.

However, legal advice given to him said that, as part of his duty to assist Parliament, he could use his discretion to discuss them.

This month, a court ruled that the deal brokered by Hartnett that saved Goldman Sachs £20 million was ‘lawful’ but ‘not a glorious episode in the history of the revenue’.

At the same time as Hartnett was adopting a softly-softly approach to corporate Britain, he presided over a series of blunders at the HMRC which would have cost him his job in the private sector.

The biggest occurred under the Labour government when the then Chancellor, Alistair Darling, admitted that HMRC mistakes meant that disks containing the personal records of 25 million people had gone missing when transferred from the tax authorities to the National Audit Office.

Hartnett then refused to apologise for the breakdown in the tax system which left millions with incorrect tax codes.

Up to 1.4 million people, including 150,000 pensioners, were landed with unexpected tax demands of around £1,400. In a subsequent BBC interview, Hartnett — whose salary was £25,000 more than the Prime Minister’s — dismissed calls to apologise.

He told Radio 4’s Moneybox programme: ‘I’m not sure I see the need to apologise. We didn’t get it wrong.’

Lord Oakeshott, a Lib Dem Treasury spokesman, warned at the time that Hartnett should ‘listen to his staff’, who were overwhelmingly critical of his management style.


In 2011, MPs tackled Hartnett about his dealings with Goldman Sachs - which was let off a £20 million tax bill after the investment bank agreed to sign up to the Government's flagship tax reforms

‘If any chief executive in the private sector continued in this way, they would have been out on their ear some time ago,’ said Oakeshott.

After a furious backlash, Chancellor George Osborne forced Hartnett into a humiliating public apology.

Retiring last summer, Hartnett was given a dinner in Oxford to mark his departure.

Activists gatecrashed it to present him with a Golden Handshake Award. Posing as representatives from Goldman Sachs and Vodafone (which Hartnett allowed to short-change the British Exchequer by funnelling its tax affairs through Holland), they mockingly lavished praise on a mortified Hartnett for saving the companies billions.

Before he retired, it also emerged that he had spent thousands of pounds of public funds on extravagant trans-atlantic trips, including a stay at a luxury £350-a-night Florida hotel. He racked up £10,245 expenses in nine months.


Hartnett first came to public attention in 1990 when, as head of the Revenue's inquiry branch, he was in charge of prosecuting comedian Ken Dodd for alleged tax evasion

Self-confident to the point of arrogance, he once told a committee of MPs he was the only commissioner with the ‘deep tax knowledge’ to conduct reviews of controversial tax cases at the highest level.

Hartnett first came to public attention in 1990 when, as head of the Revenue’s inquiry branch, he was in charge of prosecuting comedian Ken Dodd for alleged tax evasion. The entertainer had admitted hoarding £336,000 in cash in the 1970s because he ‘feared a civil war’ was about to break out in the UK.

Hartnett was anticipating victory — but he hadn’t reckoned on a jury of people from Liverpool exonerating their local hero. Dodd walked free, complaining his life had been ruined by the Revenue.

Despite the setback, in 2003 Hartnett was made a CBE. Five years later, he was named head of HMRC.

His tenure saw the traditional social contract between the State and society, under which people don’t generally cavil about paying their due taxes, become seriously undermined.

By tearing up the rule book and allowing multi-national companies to negotiate their tax bills rather than abide by the strict and detailed tax codes, Harnett changed the whole culture of the tax system.

This free-for-all culture led to increasing numbers of major companies engage in tax avoidance, because they were convinced they would not be dragged into protracted legal battles.

As a result, Hartnett paved the way for a new generation of American companies, such as Amazon and Google, which legally skirt around Britain’s tax system and which regard tax avoidance as a right.

To this day, Hartnett believes that, despite his ‘sweetheart’ deals, he saved the taxpayer money. But as UK Uncut — the organisation formed to highlight and combat corporate tax avoidance — said yesterday: ‘Dave Hartnett has been welcomed with open arms by the very people he was supposed to be regulating.’

[TonyGosling]

New City watchdog chairman is facing fresh HBOS storm
http://www.dailymail.co.uk/money/news/article-2307122/New-City-watchdo g-chairman-facing-fresh-HBOS-storm.html

By RUTH SUNDERLAND - PUBLISHED: 22:50, 10 April 2013 | UPDATED: 22:50, 10 April 2013
Former KPMG boss John Griffith-Jones is under fire as chairman of new City watchdog the FCA after it emerged he was involved in a key meeting held by the regulator to set the terms of an investigation into HBOS, despite his self-confessed conflict of interest.
KPMG acted as auditor to HBOS from 2001 to 2009.
Griffith-Jones, who joined the firm in 1975, was its UK chairman during the period the lender hurtled towards ruin, seemingly unnoticed by the beancounters, who gave its accounts a clean bill of health only months before its collapse. The audit firm earned £15.7million in fees from HBOS in 2008, before being ejected.
The implosion of HBOS was not seen as a bar by the Treasury to appointing Griffith-Jones to be deputy chairman of the FSA last September. That post was previously occupied by former HBOS chief executive James Crosby. After the disbanding of the FSA this year, Griffith-Jones was shunted into the chairmanship of its successor, the FCA.
KPMG KYBOSHED
He is thought to be earning around £300,000 a year for the three-day-a-week job, having retired last summer from KPMG with a £3million pay and pension packet. The 37-year KPMG veteran participated in his first board meeting for the watchdog on September 5, 2012 by conference call, to discuss its inquiry into HBOS. The minutes of that meeting show it was agreed the probe would not cover KPMG’s audit. Griffith-Jones ‘declared an interest’, but did not absent himself from the meeting.
Alan MacDougall, managing director of shareholder lobby group PIRC, said he should have recused himself so as not to ‘influence or inhibit’ any discussion of KPMG.
‘It cannot be right that the chairman of the new FCA has any link with the second largest UK banking collapse in history’ he added, saying Griffith-Jones should at least step down until KPMG has been properly investigated.
KPMG said it stands by the quality of its audit of HBOS. The FCA said it is not responsible for the regulation of auditors.
Griffith-Jones is not personally involved in compiling the report into HBOS, which is being overseen by Andrew Bailey, the UK’s top banking supervisor.
Accountancy regulator the Financial Reporting Council is mulling whether to launch a probe into KPMG’s audit of HBOS.
The firm this week quit the audits of two US firms, Herbalife and Skechers after the FBI launched an investigation into insider trading allegations involving a former senior partner.
It is being investigated in the UK over its audit work on BAE Systems and work done in the controversial takeover of British software group Autonomy by Hewlett-Packard of the US.

Read more: http://www.dailymail.co.uk/money/news/article-2307122/New-City-watchdo g-chairman-facing-fresh-HBOS-storm.html

[TonyGosling]

KPMG crooked profits up 27%
MARK LEFTLY Author Biography Monday 16 December 2013
http://www.independent.co.uk/news/business/news/kpmg-holds-back-20m-fr om-partners-to-boost-investment-9006490.html

Big Four accountant KPMG has prevented British partners sharing the whole of the year's profit for "the first time in living memory", according to the number-cruncher's UK chairman.

More than £20m has been held back for investment, primarily in technology, out of a profit of £455m, itself a leap of 27 per cent on last year. KPMG was able to withhold part of the pot as average pay for the 583 partners was considerably higher this year at £713,000, after a disappointing 2012 that saw them pocket £580,000 each.

Simon Collins, who took home more than £2.4m, told The Independent: "We've always distributed 100 per cent of earnings – if I'd tried to have done this last year when profit was tight I'd have been lynched. I'd like this to become a way of life for us as it's only fair to the next generation."

The money will be used in areas like cyber security and hi-tech software to help clients with their human resources management. The bean-counter has been hot on technology of late – Mr Collins describes this as the "golden thread" running through KPMG – having launched a $100m fund last month to invest in data and analytics businesses.

Although KPMG's profit was up, turnover remained broadly flat at £1.8bn. This kept the group firmly in third place, just ahead of EY but behind PricewaterhouseCoopers (PwC) on £2.7bn and Deloitte with £2.5bn. However, Mr Collins said that KPMG had been "rebuilt financially to build a platform to invest", which last year involved cutting about three per cent of its UK workforce.

These savage cuts were privately criticised by some KPMG alumni, but Mr Collins insisted that the bus- iness was now in "full-on growing mode".

He added that KPMG will be "long-term winners" out of huge changes to the audit market that have been imposed by the Competition Commission.

The regulator has demanded that listed companies put the role of auditor out to tender on a regular basis, smashing what has been perceived to be an overly cosy relationship that can see auditors in place for decades without challenge.

KPMG has picked up some big-name new clients, including consumer goods giant Unilever, housebuilder Berkeley and insurer RSA.

[Whitehall_Bin_Men]

Fascinating this one
They leave the best til the last line
"Sir Gerrard Peat, a partner in KPMG Peat Marwick, the leading accountancy firm, is a top Mason"
Ah, that will be the auditor that signed off the accounts of all the big banks in the years running up to 2008!

[TonyGosling]

Watchdog that cleared KPMG is run... by cronies from KPMG! Is this how accountant escaped blame over HBOS?
By JAMES BURTON FOR THE DAILY MAIL
PUBLISHED: 22:03, 20 September 2017 | UPDATED: 22:11, 20 September 2017
http://www.dailymail.co.uk/money/news/article-4903772/Watchdog-cleared -KPMG-run-cronies-KPMG.html

The watchdog panel which cleared KPMG of wrongdoing over the collapse of HBOS was stuffed with former staff members of the tainted accountancy firm.

An investigation by the Mail has found at least three former KPMG employees served on the committee which oversaw the investigation into the firm’s audit of the toxic lender.

Together, these three had more than 65 years’ experience with the firm.

On top of this, the regulator is chaired by grandee Sir Win Bischoff, who was chairman of the bank which rescued HBOS, Lloyds, from 2009 until 2014.

Lloyds bought HBOS for £12billion in 2008, then got £20.5billion of taxpayers’ cash to keep it afloat.

Conflict of interests: At least three former KPMG employees served on the committee which oversaw the investigation into the firm¿s audit of toxic lender HBOS +3
Conflict of interests: At least three former KPMG employees served on the committee which oversaw the investigation into the firm’s audit of toxic lender HBOS

This week, the Financial Reporting Council (FRC) dropped a probe into KPMG’s 2007 audit of HBOS, which was given a clean bill of health months before collapsing. Last night, MPs demanded a second probe into potential conflicts of interest.

The Mail asked the FRC to confirm whether any of the former KPMG staff were involved in the investigation - but it refused to reveal any details.

Liberal Democrat leader Sir Vince Cable said: ‘The vast majority of KPMG staff behave with integrity.

But the FRC really should have fallen over backwards to ensure there was no conflict of interest, and to proceed with the investigation rather than letting it drop.’

Former City minister and crossbench peer Lord Myners said: ‘Issues of perception always arise when a regulator makes a decision involving a firm where its senior directors were employed. Full declaration of an interest is necessary but barely sufficient.’

The watchdog only reluctantly probed last year after pressure from the Treasury Select Committee, and decided on Tuesday not to take the probe further.

But the Mail found that three former bosses at the firm have since held senior investigative roles at the regulator – particularly on the conduct committee tasked with investigating KPMG.

Paul George was FRC executive director of conduct until 2016, shortly before the probe was announced and is now head of corporate governance and reporting at the watchdog. He worked at KPMG from 1985 until 1999.

Joanna Osborne was deputy chairman of the conduct committee tasked with investigating the firm’s actions. She left KPMG in 2011 after 21 years and is on the financial reporting review panel.


One member of the 13-strong conduct committee is Sean Collins, who was at the accountant from 1972 until 2012.

Had a decision been made to take the probe further, KPMG’s actions would have been judged by a tribunal with 21 members, who include Anthony Cory-Wright – a KPMG audit partner until 2012 – and another former partner John Alexander.

Others who worked at the firm include Stephen Oxley on its audit and assurance council, and Chris Buckley on its corporate reporting council.

Refusing to say if former KPMG staff played a part in the probe, an FRC spokesman said: ‘There is a robust conflict of interest policy in place that ensures that any member of the conduct committee which decides on enforcement action plays no part in decisions where there may be a conflict of interest.

‘The decision to prosecute a case is an evidential test and executive counsel must decide if there is a realistic prospect that a tribunal would make an adverse finding of misconduct.’

[TonyGosling]

Here is Atul Shah's analysis of KPMG's annual report and accounts - as published last year.
http://www.ianfraser.org/are-kpmg-the-masters-of-the-universe/

Here's some detail of his new book about HBOS - which majors on the failure of KPMG as auditors (Ian Fraser wrote the foreword).
https://www.routledge.com/The-Politics-of-Financial-Risk-Audit-and-Reg ulation-A-Case-Study-of-HBOS/Shah/p/book/9781138042353

[TonyGosling]

Former KPMG Executives Charged With Conspiracy
https://www.wsj.com/articles/former-kpmg-executives-charged-with-consp iracy-1516640050

Six accountants were accused of arranging to obtain and misuse confidential information about regulator’s plans to inspect audits
Former executives at KPMG LLP were charged Monday with conspiracy to defraud securities regulators and misuse of confidential auditing information.
Former executives at KPMG LLP were charged Monday with conspiracy to defraud securities regulators and misuse of confidential auditing information. PHOTO: PHILIP TOSCANO/ZUMA PRESS
By Rebecca Davis O’Brien, Dave Michaels and Michael Rapoport
Updated Jan. 22, 2018 6:54 p.m. ET
50 COMMENTS
At KPMG LLP, prosecutors say, the revolving door spun out of control.

Starting in 2015, the giant accounting firm wanted badly to improve its standing in the eyes of its government regulator. But when KPMG recruited employees from the regulator, a scandal emerged over leaks of confidential information that resulted Monday in the indictments of five people on fraud and conspiracy charges.

Authorities likened it to “stealing the exam”: Employees of the Public Company Accounting Oversight Board, the government’s audit-industry regulator, gave KPMG executives advance peeks at the secret lists of KPMG audits the PCAOB planned to review during annual inspections of the firm, prosecutors alleged in an indictment unsealed Monday.

That information would have enabled KPMG to better prepare for the inspections, an important report card of the firm’s performance. As the scheme unraveled, accountants deleted messages, and considered hiding their communications using prepaid “burner” phones and codes over Instagram, prosecutors said.

David Middendorf, a former KPMG national managing partner, and Thomas Whittle and David Britt, both former audit partners at KPMG, were charged with conspiracy and wire fraud, according to Monday’s indictment. So were Cynthia Holder, who inspected KPMG for the PCAOB before joining the firm in 2015, and Jeffrey Wada, a former PCAOB inspector.

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KPMG Fires Partners Over Leak of Audit Regulator’s Confidential Plan (April 11)
A sixth person charged in the scheme, Brian Sweet —who also inspected KPMG for PCAOB before joining the firm—pleaded guilty earlier this month to conspiracy, according to a document unsealed Monday.

According to court filings, Mr. Sweet took confidential PCAOB documents with him when he went to work for KPMG in 2015, and continued to acquire—with the help of at least two other board employees—and share PCAOB information with KPMG executives through early 2017.

“In stepping up and cooperating with federal officials, Mr. Sweet has taken the first step toward redressing his mistakes,” said Richard Morvillo, a lawyer for Mr. Sweet.

An attorney for Mr. Middendorf said his client would defend himself against the charges. A lawyer for Mr. Britt said the former KPMG partner was innocent of any criminal charges.

Lawyers for the other defendants couldn’t be reached for comment.

Ms. Holder and Messrs. Sweet, Middendorf, Whittle and Britt were all “separated from” KPMG around March or April of 2017, according to the indictment. In addition, Scott Marcello, who headed KPMG’s audit practice and isn’t among the defendants, was also fired, the Journal reported last year. Mr. Marcello didn’t respond to requests for comment Monday.

READ THE UNSEALED FEDERAL INDICTMENT

United States of America v. David Middendorf, Thomas Whittle, David Britt, Cynthia Holder, and Jeffrey Wada
United States of America v. Brian Sweet
Manuel Goncalves, a KPMG spokesman, said in a statement that the firm promptly notified the authorities when it learned of the leaking and has been fully cooperating with the investigation. The firm “took swift and decisive action,” he said, including firing the individuals involved, and has since “taken remedial action to assure that such conduct cannot happen again.”

According to the indictment, Mr. Sweet arrived at KPMG in May 2015 armed with inside information from the PCAOB, and KPMG executives wasted no time asking him for it. At a welcome lunch in Mr. Sweet’s first week of work, Mr. Middendorf asked Mr. Sweet about upcoming KPMG inspections.

Later that week, Mr. Middendorf told Mr. Sweet to remember where his paycheck came from, and urged him to be loyal to KPMG, according to the indictment. At around that time, Mr. Whittle allegedly asked Mr. Sweet for a copy of the PCAOB list of inspections.

KPMG executives urged Mr. Sweet to help recruit others from the PCAOB, including Ms. Holder, who according to the indictment lied to the board’s ethics office about pursuing employment at the firm, allowing her to continue working on KPMG-related matters. At Mr. Sweet’s request, Ms. Holder provided him with an internal PCAOB report, among other confidential materials, according to the indictment. She began working at KPMG in August 2015, according to SEC records.

Prosecutors say Ms. Holder soon drew Mr. Wada into the alleged scheme. In November 2015, Mr. Wada gave Ms. Holder the date of a PCAOB inspection of a KPMG matter in Japan, according to the indictment. He also alerted her to a fraud risk in another matter, which allowed KPMG to prepare an answer for why the firm hadn’t seen it.

Mr. Wada, too, hoped to leave the PCAOB, prosecutors say. In January 2017, according to the indictment, he emailed Ms. Holder to lament that he hadn’t gotten a promotion. “God this place sucks,” Mr. Wada wrote. “Please let me know what else you need from me.”

He attached a copy of his résumé.

William Duhnke, the PCAOB’s chairman, said in a statement that the board had already reviewed and reinforced safeguards against improper disclosure of confidential information. He said the board will conduct an review of its information technology and security controls as well as its compliance and ethics protocols.

The PCAOB began investigating the leaks last year.

Faring Poorly
Percentage of deficient audits out of all KPMG audits and partial audits inspected by PCAOB
Source: PCAOB inspection reports on KPMG
Note: Years represent the year of the inspection.
%
2010
’11
’12
’13
’14
’15
0
5
10
15
20
25
30
35
40
45
50
55
60
The PCAOB inspects the biggest accounting firms each year, evaluating a sample of each firm’s most challenging audits to assess their performance and their compliance with auditing standards. The inspections are aimed at helping the firms improve their own audits and don’t lead to any penalties, but the results are widely viewed as a barometer of whether the quality of audits is getting better or worse.

The PCAOB’s 2016 report on the inspection of KPMG—one of the inspections for which the clients’ identities was allegedly leaked—hasn’t been released by the PCAOB, though the same year’s reports for the other three Big Four firms have been.

Messrs. Whittle and Britt appeared in magistrate court in Manhattan Monday and were released on bond. The others made initial appearances in other states, according to a spokesman for the Manhattan U.S. attorney’s office.

The Securities and Exchange Commission also announced civil charges Monday against the defendants. Mr. Sweet has already agreed to settle the SEC’s claims and was permanently barred from auditing the financial statements of public companies, according to an SEC order.

The SEC was so concerned with problems identified by the PCAOB within KPMG’s audits that the securities regulator met with KPMG’s chief executive officer, its vice chair of audit, and Mr. Middendorf in February 2016, according to the indictment. The SEC told the executives they should be “in more regular contact” with the SEC about the firm’s audit issues, the court filings show.

Write to Dave Michaels at dave.michaels@wsj.com and Michael Rapoport at Michael.Rapoport@wsj.com

[TonyGosling]

2011 Office of Fair Trading launched enquiry into Big Four - then abolished
2017 Financial Reporting Council launched enquiry into Big Four - nothing happens

Big four auditors face investigation
https://www.theguardian.com/business/2011/oct/21/oft-to-investigate-bi g-four-auditors

PwC, KPMG, Deloitte and E&Y referred to Competition Commission after OFT rules that audit market is too concentrated
Jill Treanor City editor Fri 21 Oct 2011
The competition authorities are launching a full-scale inquiry into the big four auditors, which earn nearly 99% of the fees paid by the UK's biggest companies.

The Office of Fair Trading (OFT), which is referring the issue to the Competition Commission, said it had been concerned about the concentration of the audit market "for some time" and had concluded that it was not competitive enough.

PricewaterhouseCoopers audits more companies in the FTSE 100 index than any of its rivals, with Deloitte and KPMG having about the same number of clients and Ernst & Young also taking a share of the business.

The big four firms were criticised at the time of the credit crunch for being too cosy with their clients and giving many of the worst-hit banks – including Northern Rock, Royal Bank of Scotland and Lloyds – a clean bill of health.

John Fingleton, OFT chief executive, said: "The market for large company audits lacks sufficient competition and does not work well for customers. It is highly concentrated, largely supplied by four big firms, with clients rarely switching between auditors. There are also high barriers to entry for new and smaller competitors. These are not the indicators of a competitive market."

But the auditors are putting up a fight. "There is fierce rivalry as we compete vigorously for audit appointments," said Richard Sexton, a partner at PwC. "All of our audit engagements are for one year only, after which shareholders must vote again to decide on our reappointment."

KPMG said: "There is already effective competition and pricing in the UK audit market." However, it promised to "co-operate fully" throughout the inquiry. Deloitte said the UK market was "highly competitive", while E&Y also claimed there was strong competition.

The referral comes as Brussels is working on plans that could break up the "big four" by shearing off their consultancy arms from their auditing practices.





FRC urged to fine Big Four firms penalties over £10m
https://www.accountancyage.com/2017/11/23/frc-urged-fine-big-four-firm s-penalties-10m/

An independent review suggested fines of £10m or over would be appropriate in instances of “seriously poor” audit work

Alia Shoaib November 23, 2017

FRC urged to fine Big Four firms penalties over £10m
An independent review into the Financial Reporting Council’s (FRC) enforcement sanctions system has suggested fines of over £10m for Big Four firms who have carried out “seriously poor” audit work.

The report, produced by former Court of Appeal judge Sir Christopher Clarke, stated that although it is not appropriate to set a tariff or range for financial sanctions, fines in the region of £10m would be appropriate for Big Four firms in relation to incompetence in audits of a major public company, particularly “where the errors were measured in nine figures or more and there had in consequence been either widespread actual loss or the risk thereof”.

Comparatively, the largest fine to have ever been issued by the FRC is £5.1m, given to PwC over their audit of RSM Tenon.

This suggestion was made with the assumption that there was no intention of wrongdoing, but if there was the report suggests the fine could be well above £10m.

The report explained: “Fines in single figure millions were only a small fraction of the revenues of members of the Big Four, which dwarf those of other firms.”

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“There was a real danger that fines at this level would be regarded as no more than a cost of doing business and have little deterrent effect.”

The report made a series of recommendations including removing the requirement for tribunals to refer to previous cases when determining an appropriate sanction.

It also suggested giving greater attention to the use of non-financial penalties, which respondents suggested may be more effective in ensuring the objectives of sanctions were achieved. For example, on occasions where an individual was found to be dishonest, the report recommends exclusion from membership for at least 10 years.

Another suggestion was to offer discounts as an incentive to encourage timely settlement.

Also included in the report were a range of suggested amendments to the FRC’s Sanctions Guidance, suggesting it should include considerations of the level of cooperation of the individual or firm with the FRC, the impact on the firm due to their involvement in the investigation, and whether any remedial actions have been taken.

The FRC said it welcomed the report and is now carefully considering which recommendations to adopt.

[Whitehall_Bin_Men]

Deloitte faces £10m fine for 'failing to spot a string of misleading practices' at tech firm Autonomy before it was sold to HP for £7.4bn
http://www.thisismoney.co.uk/money/news/article-5792545/Deloitte-faces -10m-fine-tech-scandal-Autonomy-HP.html

By Matt Oliver For The Daily Mail
22:09, 31 May 2018, updated 22:18, 31 May 2018

Deloitte is accused of failing to spot misleading practices at tech firm Autonomy
This apparently happened before it was sold seven years ago to HP for £7.4bn
Former boss Mike Lynch is accused of making it look more valuable than it was
One of the Big Four accountants has been dragged into the massive scandal surrounding the former British tech pioneer Autonomy.

Deloitte is accused by regulators of failing to spot a string of misleading practices at the software company before it was sold to Hewlett Packard (HP) for £7.4billion seven years ago.

After the deal, HP wrote off three-quarters of Autonomy’s value and said executives, including former boss Mike Lynch, cooked the books to make it look more valuable than it was.

Deloitte is accused by regulators of failing to spot a string of misleading practices at the software company before it was sold to Hewlett Packard (HP) seven years ago
Sushovan Hussain, Autonomy’s former finance chief, was convicted of fraud four weeks ago in a US court. Yesterday, the UK’s Financial Reporting Council (FRC) said Richard Knights and Nigel Mercer, the auditors at Deloitte who vetted the books, had not properly scrutinised its accounts.

The regulator claimed Knights ‘recklessly’ failed to correct a misleading statement made by Hussain to an FRC panel and had not acted objectively.

Hussain, who is appealing against his conviction in the US, also faces action from the watchdog, which assisted with his prosecution. It accused him of ‘acting dishonestly and/or recklessly’ when submitting Autonomy’s accounts, giving details of transactions with third-party sellers and making statements to the FRC.

Stephen Chamberlain, Autonomy’s former vice-president of finance, faces similar accusations and is accused of failing to act ‘with competence and due care’, failing to provide vital information to Deloitte and failing to correct misleading statements by Hussain.

Autonomy boss Mike Lynch
The FRC is taking its complaints to an independent tribunal, with the hearing dates not yet confirmed.

If its claims are upheld, Deloitte, Knights, Mercer, Hussain and Chamberlain could face fines of up to £10m under a new sanctions regime, although the tribunal can impose unlimited fines.

Knights and Mercer could be banned from their profession.

Deloitte has always maintained it knew nothing of any alleged improprieties in Autonomy’s accounts and a spokesman for the auditor yesterday said that it had fully co-operated with the FRC.

He added: ‘We are disappointed these complaints have been brought and we will defend ourselves against them.’

The spokesman said Knights no longer did statutory audit work and Mercer had retired. Spokesmen for Hussain and Chamberlain were approached for comment last night but did not respond. The FRC’s allegations are yet another blow to former Autonomy boss Mike Lynch and Hussain as they prepare for a £3.7billion High Court showdown with HP Enterprises (HPE), which included Autonomy when it was split off from HP in 2015.

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Lynch and his former finance chief are accused of artificially inflating Autonomy’s value before it was sold in a deal that netted them millions of pounds.

Both deny any wrongdoing and maintain they have been made scapegoats by HPE after it mismanaged the takeover of Autonomy.

Lynch has insisted the firm was ‘open and transparent’ with auditors and has launched a £117million counter-claim over reputational damage.

But in a blow in early May, US prosecutors – with assistance from UK authorities – presented accounts, press releases, emails and phone calls which they claimed showed systematic fraud at Autonomy. By late 2011, they said, the British company had become ‘an unsustainable Ponzi scheme’.

The High Court battle between HPE and Lynch and Hussain is expected to take place next year. Lynch is counter-suing. A spokesman for Lynch yesterday declined to comment on the FRC’s complaints.

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[Whitehall_Bin_Men]

Deloitte caught doing MASSIVE false accounting for Malaysian government like they get away with in London with impunity? every single day

Deloitte fined £400,000 over company linked to scandal-hit 1MDB
Malaysian regulator says firm failed to report irregularities in Islamic bond programme
https://www.theguardian.com/business/2019/jan/30/deloitte-fined-by-mal aysia-over-breach-linked-to-1mdb

Staff and agencies
Wed 30 Jan 2019 15.59 GMT First published on Wed 30 Jan 2019 15.16 GMT

Deloitte has been fined 2.2m ringgitt (£415,000) by Malaysian regulators for failures in its audit of a firm linked to the scandal-ridden state fund, 1MDB.

The Securities Commission Malaysia said Deloitte was reprimanded because it failed to report the irregularities detected in the Sukuk Murabahah Programme, an Islamic bond issued by Bandar Malaysia Sdn Bhd (BMSB).

Deloitte was the statutory auditor for BMSB and its holding company 1Malaysia Development Berhad Real Estate (a subsidiary of state fund 1MDB) for the financial years ending March 2015 and 2016 when the bonds were issued.

The securities regulator said Deloitte’s failure to immediately report irregularities may have a material effect on the ability of BMSB to fulfil its obligations in repaying sukuk holders any amount under the programme.

Imposing a fine of 2.2m ringgit , the regulator said it “finds the breaches committed by Deloitte serious in nature as it has failed to discharge its statutory obligations”.

Malaysia’s former prime minister Najib Razak set up the 2.4bn ringgit 1MDB in 2009 as a state investment fund dedicated to attract investment projects and beneficial developments for the country. The fund ended up accumulating losses of 42bn ringgit.

The corruption scandal at 1MDB, which is overseen by the country’s finance ministry, was uncovered in 2015 when several media outlets revealed the diversion of 2.6bn ringgit to Najib’s private accounts.


Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
Najib, who was in power from 2009 to 2018, denied the accusation, saying the money was a donation from a Saudi prince.

The scandal cost him the general election in May last year. His successor, Mahathir bin Mohamad, reopened investigations into 1MDB.

Najib faces 38 charges of graft in court and his wife, Rosmah Mansor, 17. Both have pleaded not guilty.

The US justice department estimates that about $4.5bn (£3.44bn) was diverted from the 1MDB, $1bn of which may have been laundered in the country with the purchase of real estate, yachts, jewellery and works of art among other goods.

[TonyGosling]

Competition watchdog recommends accountancy market overhaul
18 April 2019
https://www.bbc.co.uk/news/business-47969528

The UK's competition regulator has recommended a major shake-up of the UK's accountancy market.

But it has stopped short of calling for the Big Four accountancy firms to be broken up.

The Competition and Markets Authority (CMA) said auditing and consultancy services should be entirely separate.

However, industry bodies criticised the proposals, with one saying there was no evidence that they would lead to better audits.

The CMA's recommendations follow the collapse of high-profile companies such as construction firm Carillion, which was audited by KPMG.

CMA chairman Andrew Tyrie said: "People's livelihoods, savings and pensions all depend on the auditors' job being done to a high standard.

"But too many fall short - more than a quarter of big company audits are considered sub-standard by the regulator. This cannot be allowed to continue."

Its three main recommendations are:

A split between audit and advisory businesses, with separate management and accounts
A mandatory "joint audit" system, with a Big Four and a non-Big Four firm working together on an audit
Regulation of those appointing auditors
In 2016-17, the Big Four accountancy firms - Deloitte, EY, PwC and KPMG - accounted for 97% of FTSE 350 audits and 99% of FTSE 100 audits.

The Financial Reporting Council (FRC), which regulates the accountancy sector, has also been under review and plans have been put forward to toughen up the regulation of major audit firms.

The report, headed by Legal & General chairman Sir John Kingman, recommended that the FRC should be replaced by a new Audit, Reporting and Governance Authority.

And earlier this month, MPs called for the Big Four accountancy firms to be broken up.

Rachel Reeves, chair of the Commons Business, Energy and Industrial Strategy Committee, said: "We welcome the CMA's recommendations aimed at addressing what are serious failings in the audit market and ending the stranglehold of the Big Four.

"We agree that it is high time that their audit work is separated out from their consultancy services to tackle the conflicts of interest that have persisted for too long."

'Poorly focused'

Business body the CBI said that improving the quality of audits must be "paramount", but warned that some of the CMA proposals risked "damaging" the UK's reputation.

"Mandating joint audits will add cost and complexity for business with no guarantee of better outcomes," said CBI president John Allan.

"Operational splits could restrict access to the skills required to carry out complex audits," he added.

PwC said in a statement: "It's important that the potential impact and implementation of recommendations are well thought through to ensure they deliver the desired outcomes and avoid any unintended consequences."

Marcus Scott, chief operating officer of finance sector industry body TheCityUK, said: "Radical solutions imposing operational splits on the big audit firms may make for good headlines, but they are poorly focused, with no evidence that they will lead to genuinely enhanced audits.

"Change should be embarked upon with care, conscious of the risks of unintended consequences and with an eye to maintaining the huge value these firms provide.

"As such, reform should focus on quality, transparency and accountability - three vital areas that will bring benefits for audited companies, investors and lenders."

[Whitehall_Bin_Men]

Woodford fallout: FCA to examine fund buy lists as MPs circle
By Michelle McGagh 11 Jun, 2019
https://citywire.co.uk/investment-trust-insider/news/woodford-fallout- fca-to-examine-fund-buy-lists-as-mps-circle/a1238348

Woodford fallout: FCA to examine fund buy lists as MPs circle
Financial Conduct Authority (FCA) boss Andrew Bailey has said the regulator will re-examine platform's fund buy lists following the suspension of the Woodford Equity Income fund.

Speaking on the BBC's Today programme, Bailey said the regulator would 'look at these again' just two months after a platform study that effectively handed them a clean bill of health.

The support of the UK's online stock broker Hargreaves Lansdown (HRGV) was a major factor behind the huge amounts Woodford was able to raise for his Woodford Equity Income fund, which stood at £10.2 billion at its peak, falling to £3.7 billion last week when the fund was suspended.

Customers of Hargreaves, which featured the fund in its Wealth 50 fund buy list, owned £3.4 billion of the fund at its peak, falling to £1.4 billion by the end of last year.

'We look at how funds construct these best-buy tables, and the principles are that they should be impartial, do it thoroughly and they should make sure it's done properly in the sense that they should be up-to-date,' said Bailey.

'We will look at these again to ensure that they and indeed others - it's not just a point about Hargreaves Lansdown - have abided by those principles.'

Bailey also added to pressure on Woodford over the fees he is charging while the fund is suspended,

Bailey said while the manager should review his charges, which range between 0.5% and 0.75% on most platforms, 'we need him to manage these assets now more than ever'.

'His job now is to get this fund back into a position where there can be orderly trading, so he has his work cut out now,' he said.

Woodford has faced calls to drop his fund fee while his £3.7 billion Woodford Equity Income fund is suspended. Online stockbroker Hargreaves Lansdown has dropped its 0.45% platform charge on its customers' holdings in the fund and urged the manager to do the same.

MP Nicky Morgan, chair of the Treasury committee, has also urged Woodford to waive the fee. Morgan yesterday questioned how ‘alert’ the regulator was over the issues leading up to the suspension of Woodford's fund, in a letter to the FCA ahead of its appearance before the committee on 25 June.



In a letter to Bailey, Morgan (pictured) said that ‘questions have been raised about the FCA’s alertness to the problem’.

She said there was ‘clearly a significant concern’ about the impact the suspension has had on investors, ‘as well as the wider regulation and supervision of funds’.

In her letter she said Bailey would need to answer questions around how long the fund suspension should be, whether there should be a maximum length, and when the FCA would intervene.

The committee has also asked for a timeline of the FCA's contact with authorities in Guernsey. Citywire revealed in March that Woodford had listed his stakes in unquoted stocks in Guernsey as a means of remaining within the City regulator’s rules on funds’ unquoted holdings, which must not exceed 10%. Since those stakes have listed, not a single share has been traded.

The FCA said last week that it was examining the manager's listing of its stakes in Guernsey, and was in talks with the International Stock Exchange (Tise). Tise responded by saying it had made several attempts to contact the FCA in April but only secured a call in May.

Morgan said Bailey should also inform the committee on whether it had ‘initiated any formal investigation related to the events that led to the suspension’.

‘The committee will use Bailey’s response, and the FCA’s appearance before us later this month, to try and get to the bottom of this,’ said Morgan.



Bailey admitted in a letter in the Financial Times that the suspension of Woodford’s (pictured) flagship fund had raised questions about the UK’s regulatory approach of investment in illiquid assets, to which the fund had a high weighting.

The spike in redemptions and the fund’s inability to meet withdrawals raised questions around whether the rules requiring assets to be liquid were working appropriately, said Bailey.

Former City minister Lord Myners has criticised the regulator over its handling of the Woodford suspension, saying it ‘should have been awake’ and that it missed ‘clear warning signs’.

The suspension of the fund has sent shockwaves through the investment industry, leading Bank of England governor Mark Carney to call for tougher fund rules on illiquid investments, although he did not specifically name Woodford’s fund.

He said there was ‘a structural mismatch between the frequency with which they offer redemptions ad the time it would take them to liquidate their assets’.

Comments

JohnR6 months ago
Mr. Bailey would do well to take his own advice.
His resignation would not go amiss.
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[TonyGosling]

Deloitte get the loot
https://morningstaronline.co.uk/article/c/deloitte-get-loot

A drive through testing facility for COVID-19 at Edinburgh Airport
IN ANOTHER example of how the coronavirus crisis has driven privatisation, Deloitte were given full charge of the drive-through Covid-19 testing programme: the government sees a medical emergency and turns to accountants and management consultants. Deloitte subcontracted much of the work to the likes of Sodexo and Mitie.

A new report reveals Deloitte also played a central role in the development of NHS Supply Chain, which has struggled so badly to provide PPE supplies to NHS workers in the pandemic.

Its involvement emerged in a report by University of Greenwich professor David Hall, co-published with the anti-privatisation group We Own It. Dr John Lister, both a health expert and redoubtable campaigner also co-wrote the report, which examines the history of the agency that buys and distributes most NHS “consumables,” including PPE. It’s already had some coverage in the Morning Star, but I wanted to look at some details.

NHS Supply Chain was first formed in 2006 when Labour privatised NHS Logistics. Many hospital trusts continued to buy their own consumables, however, often forming consortia to bypass the privatised, centralised NHS Supply Chain. So in 2017, then-health secretary Jeremy Hunt set up Supply Chain Co-ordination Ltd (SCCL) to transform and manage NHS Supply Chain. Around £500m was taken from trusts to force them to buy more via the revamped central system.

Though state-owned, SCCL is run more like a private firm, managed by Jin Sahota, a former French telecoms executive, helped by Rob Houghton, a former Post Office IT boss whose review into the scandal-hit Horizon computer system was mysteriously abandoned.

Having drawn money in from NHS hospitals, SCCL then passes on both the purchasing and supply to private companies under a series of contracts with firms such as DHL, Vizient, Akeso, Compass and Unipart doing the work under “eleven specialist buying functions, known as category towers.” As Hall’s report makes clear, this baroque system puts hospital money into a complex web of contracted middlemen, often at some remove from actual manufacturers.

The government’s aim might have been to cut hospital purchasing costs, but the system, as seen in the Covid-19 crisis, has failed spectacularly in deliveries of PPE supplies. So who might have designed a system that serves the public sector so badly? Management consultants and accountants. In 2017, Ernst & Young was given up to £20m to design the new central purchasing system. And in 2018, Deloitte was paid £400,000 to design the “category towers” buying system.

Deloitte’s role has angered experienced NHS buyers. The Health Care Supply Association, representing NHS buyers, pointed out that “the NHS has enough capacity and knowledge to be part of the solution, rather than have the solution done to us.” Two years on, NHS Supply Chain’s centralised PPE shortages do resemble something done to rather than by the NHS.

[TonyGosling]

Britain's Big Four auditors have just three months to outline how they will break up their businesses after a string of scandals
https://www.thisismoney.co.uk/money/markets/article-8495331/Big-Four-f ace-revolution-audit-industry.html
By LUCY WHITE FOR THE DAILY MAIL

PUBLISHED: 22:04, 6 July 2020 | UPDATED: 22:20, 6 July 2020

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Britain's Big Four auditors have just three months to outline how they will break up their businesses after a string of scandals.

The accounting watchdog has told EY, PwC, KPMG and Deloitte they must submit plans by October on how they will split their audit arms from their consulting businesses.

It comes after the major accountancy firms were accused of poor practice and conflicts of interest, following their oversight of a number of corporate failures, including Wirecard, Carillion, Thomas Cook and BHS.

All change: The accounting watchdog has told EY, PwC, KPMG and Deloitte they must submit plans by October +1
All change: The accounting watchdog has told EY, PwC, KPMG and Deloitte they must submit plans by October

The incidents prompted a series of reviews into the auditing industry, which eventually resulted in a recommendation to break up the heavy-hitting Big Four.

The orders from the Financial Reporting Council (FRC) to push ahead with the splits mark the first major shake-up of the accounting industry in decades. Sir Jon Thompson, the watchdog's chief executive, said the FRC has delivered 'a major step in the reform of the audit sector by setting principles for operational separation of audit practices from the rest of the firm'.

For investors and customers, auditing is arguably the most important job the Big Four firms undertake. Many shareholders rely on an auditor to flag concerns about the company's finances – though in cases such as Wirecard and Thomas Cook, where the parlous state of their balance sheets remained unnoticed until shortly before their collapse, this proved unreliable.

However, the Big Four only make around a fifth of their money from audit work, while rapidly expanding their lucrative consulting practices.

This has led to critics claiming that auditors 'go easy' on the companies they assess, due to fears they may lose out on valuable consulting work.

PwC, for example, signed off on Thomas Cook's accounts for a decade to 2016. During the first four years of that audit contract, it also advised the board on remuneration.

The FRC has outlined a number of principles which firms must abide by when enforcing the split of their divisions. These include paying auditors in line with the profits they make from auditing, separating the finances of the audit division from the rest of the business, and introducing an independent board to oversee the adequacy of the audits. The FRC has also made clear that auditors 'should work for the benefit of shareholders of audited entities and wider society; they are not accountable to audited entities' executive management'.

Just last year, David Dunckley, the chief executive of accounting firm Grant Thornton, told a committee of MPs that auditors 'are not set up to look for fraud'.

EY, KPMG, PwC and Deloitte will have until 2024 to actually implement the splits of their businesses.