The UK accounting regulator has fined Deloitte £6mn for “a highly concerning pattern of failure” in its audits of rail and transport operator Go-Ahead across five years.
The Financial Reporting Council said on Thursday it would fine the Big Four firm for breaching audit requirements in its work at three subsidiaries of Go-Ahead between 2016 and 2020. The fine was reduced from £11mn because of Deloitte’s “exceptional co-operation”, the regulator said.
The watchdog launched the investigation four years ago following a crisis at Go-Ahead, which the UK government stripped of the Southeastern rail franchise in 2021 after finding it had failed to declare tens of millions of pounds of taxpayer funding that should have been returned.
Instead, the FRC found that Go-Ahead kept the money and began releasing it as profit without telling the government. The practice stopped only when the overpayments were discovered by the government, which eventually fined the company £23.5mn.
In all, Go-Ahead retained more than £30mn in overpayments between its 2016 and 2020 financial years, including £8mn recorded as profit while Deloitte was auditor.
The FRC said Deloitte did not challenge the wrongful retention of public money.
Deloitte’s working papers did not discuss the risk of fraud around the overpayments despite a significant internal warning on the matter, the FRC found.
Separately, the watchdog said that one member of Deloitte’s team emailed the lead partner on the audit in 2019 warning that Go-Ahead’s management did not want to “draw attention” to the overpayments. The same partner reviewed a paper that said a change to the accounts was intended to “hide” those overpayments.
The partner “failed to appreciate that this was a deliberate attempt . . . to conceal” the issue and signed off the accounts, the FRC said.
“These breaches show a highly concerning pattern of failure by Deloitte to apply sufficient scrutiny to decisions and actions by [Go-Ahead] which were clearly questionable,” said FRC executive director of investigations, Penrose Foss.
“The fact that some of those decisions and actions put very large amounts of UK taxpayers’ money at risk is particularly troubling,” Foss said, adding that this was a factor in the severity of the fine imposed.
The watchdog did not take action against the partner because of “exceptional personal circumstances”.
The regulator also found problems at two other Go-Ahead subsidiaries.
At the London and Birmingham Railway, the company “attempted to conceal” £5.6mn of sums it owed to the Department for Transport, the FRC said. The Deloitte partner approved removing an explicit disclosure of the issue “with no further discussion” and the subsidiary therefore reported an operating profit of £8.6mn despite generating just £450,000 in revenue.
At German subsidiary Gaby, Deloitte applied “insufficient scrutiny” to onerous contract provisions, the regulator said. In 2021 Gaby had to make a restatement of more than €40mn in additional funds to cover expected losses.
The “numerous breaches” were material and made in areas that Deloitte had itself identified as significant audit risks, the regulator said.
Go-Ahead has since been taken private and delisted. It had been one of the UK’s most significant rail operators under the privatised franchise system, which saw companies contracted by the government to run passenger trains.
As well as Southeastern, Go-Ahead ran Govia Thameslink Railway, one of the busiest commuter lines in south-east England.
It has largely pulled back from UK rail but in 2024 was awarded a joint contract to run the Elizabeth line in London.
The regulator has three outstanding investigations into Deloitte, whose UK-based partners were paid a record of £1.13mn last year, on average. Separately, the FRC said on Thursday it had closed a years-long investigation into Deloitte’s auditing of clothing retailer Joules Group after “reviewing the evidence”.
Deloitte UK said: “We regret that aspects of our audit work did not meet the standards expected and have learned from this matter. We are committed to continuous improvement and the delivery of high-quality audits.”
Go-Ahead said the FRC’s investigation related to “a historic issue”.
“Go-Ahead has learnt from that incident and has transformed significantly since then,” it added.