BDO fined £6.5m after regulator slams it for faking audit evidence
Business advisory giant BDO has been slapped with a £6.5m fine after two of its former audit engagement partners made admissions of misconduct.
The Financial Reporting Council (FRC) launched an investigation after receiving formal complaints about the dishonest conduct of a BDO senior manager between 2015 and 2019, including the creation of false audit evidence, the issuance of unapproved auditors’ reports, and the unauthorised insertion of partners’ signatures.
Former partners John Everingham (who resigned in July 2021) and Kevin Cook (who resigned in July 2019) were accused of inadequately supervising, monitoring, and overseeing 21 and 13 audits, respectively, resulting in unauthorised reports and inadequate evidence.
The FRC’s findings centred on two main issues: dishonesty of a senior manager and failures in supervision and controls by the firm and its partners, which enabled the misconduct to occur.
BDO, Everingham, and Cook, admitted to misconduct under the Accountancy Scheme.
In which it was found and admitted to creating false audit evidence, causing auditor’s reports to be issued without approval from the relevant audit engagement partner, and inserting electronic copies of the audit engagement partners’ signatures in auditor’s reports without their approval.
BDO ‘severe reprimand’
As a result, the FRC issued BDO a severe reprimand, along with a £6.5m fine, which was reduced by 10 per cent to £5.8m. It also had to pay £716,000 for the FRC’s costs.
The regulator has also required BDO to provide a report to the FRC every 6 months for a period of two years concerning matters set out in the settlement agreement.
Everingham and Cook also received severe reprimands. Everingham was issued with a £200,000 fine, reduced to £189,000, and Cook was issued with a £100,000 fine, reduced to £90,000.
Additionally, the FRC placed a six-year audit ban on Everingham and a three-year ban on Cook.
FRC Deputy Executive Counsel Jamie Symington stated: “This case has established that BDO did not have sufficiently robust systems and controls in place from 2012 to 2019 to ensure that audit engagement partners diligently conducted and supervised their audits.”
“The failings admitted by BDO and the two partners enabled the senior manager’s dishonest course of conduct to go undetected over several years, thereby undermining the integrity and quality of numerous audits in the relevant period.”
“The substantial sanctions imposed reflect the extent to which the serious failings established in this case will undermine confidence in audit and the accountancy profession,” he added.
BDO apologises for ‘serious mistakes’
A BDO spokesperson said: “We acknowledge and apologise that serious mistakes were made in this case. Our internal controls were not good enough and, as a firm, we did not respond adequately to internal reports which raised or should have raised concerns about the conduct of one of our (now former) audit senior managers in one of our regional offices.”
“This meant that – before 2020 – the former senior manager in question was able to perpetrate what the FRC has rightly described as, “dishonesty and [a] scale of misconduct [which] was extremely serious”. We acknowledge that we, and our two former audit partners, should have detected the individual’s dishonest actions earlier than we did. None of the individuals who were respondents to the investigation work at BDO any longer.”
“Once the leadership team was alerted to the senior manager’s misconduct in 2019, we took immediate action: self-reporting to the FRC and ICAEW, undertaking an extensive forensic investigation, and commencing a remediation programme to improve our systems and controls. We have fully co-operated with the FRC during its investigation.”
“We have been determined to learn from what happened. As the FRC states, since discovering the senior manager’s misconduct, BDO has “worked to remediate and strengthen relevant systems and controls”. We will continue to monitor and, where necessary, improve controls enhancements with the oversight of our regulator,” they added.