Deloitte fined over Go-Ahead audits

Britain’s Financial Reporting Council has fined Deloitte £6.05 million for failures in its statutory audits of bus and rail operator Go-Ahead Group covering the financial years 2016 to 2020. The regulator said the financial penalty was reduced from a proposed £11 million after taking into account what it described as Deloitte’s exceptional cooperation and admissions during the enforcement process.

In addition to the financial sanction, Deloitte received a severe reprimand. The FRC concluded that the firm’s audit reports for the relevant years did not satisfy applicable auditing requirements, prompting further remedial measures beyond the fine itself.

Central to the case were overpayments made by the Department for Transport to Go-Ahead Group subsidiaries under rail franchise agreements. The FRC found that Deloitte failed to challenge the wrongful retention by these subsidiaries of more than £30 million of public money that had been overpaid.

The Department for Transport became aware of the overpayments in 2021. It subsequently recovered the funds, declined to renew the relevant rail franchise and imposed a £23.5 million penalty on Go-Ahead subsidiary London & South Eastern Railway.

The FRC’s findings pointed to specific accounting treatments at several Go-Ahead subsidiaries during the audited period. Reports state that London & South Eastern Railway moved £2.4 million into profit in the 2016 financial year and set aside a further £27 million from 2016 to 2020 under a later franchise agreement.

At London & Birmingham Railway, £5.6 million was released into profit in the 2020 financial year. Separately, the reported future cash flows of Go-Ahead Bayern were revised from an €8 million loss to a €3 million gain, a shift the regulator considered significant for audit scrutiny.

The FRC said the case showed a highly concerning pattern of failure by Deloitte to apply sufficient scrutiny to key audit judgments. It concluded that some decisions taken during the audits put very large amounts of taxpayers’ money at risk.

Beyond the fine and reprimand, Deloitte has been ordered to prepare a root-cause report for its FRC supervisor to help address the identified shortcomings. The firm is also required to pay the costs of the executive counsel’s investigation, adding to the financial and operational impact of the enforcement action.