Top accountancy firm loses appeal over failing to spot forged documents in huge London fire brigade privatisation scandal
The big four accountancy firms make a fat living from auditing the large number of private companies taking over public services.
But a Court of Appeal ruling last month suggests that if they don’t do the job properly they could now face huge damages claims from directors of companies who were duped by their negligent auditing.
The Assetco saga has been extensively covered on this blog. It involved the sale and leasing of the entire fire engine fleet of London and Lincolnshire to a gang of spivs and fraudsters – who were last known to still be evading justice nearly a decade after swindling investors and conning the London Fire Brigade. The Fire Brigades Union also took up the issue on behalf of its members.
ban after causing fraud
A separate investigation by the Financial Reporting Council found Assetco’s chief executive John Shannon ” causing or facilitating fraud. He was banned as practising as a chartered accountant for 16 years – a new British record – fined £250,000 and ordered to pay £300,000 in costs.
Raymond “Frank” Flynn (former Chief Financial Officer) for banned from practising for 14 years and Matthew Boyle (former Financial Controller) for 12 years. Additionally, £150,000 and £100,000 respectively have been imposed and they share paying part of the £400,000 costs bill.
Grant Thornton, and the accountant who audited the company Robert Napper, has led to a £3.7m fine for both of them for professional misconduct. ( Napper was fined £120,000) Neither Grant Thornton nor Mr Napper made any financial gain out of the scandal. The accountant took early retirement and now lives in a bucolic Oxfordshire village developing his hobby as a wine buff.. See here.
Now the Abu Dhabi directors of Assetco who took over in 2011- straight after the London and Lincoln operations collapsed have successfully sued Grant Thornton for £22m and their case has been upheld by the Court of Appeal.
The first trial lasted 20 days, involving extensive evidence from factual and expert witnesses and consideration of a large volume of documents and of 877 pages of written submissions as well as oral submissions.
Grant Thornton appealed but lost the case. The court was told that if Grant Thornton had audited the accounts properly they would have found evidence of forged documents which inflated the value of the firm.
The court were told Mr Shannon and Mr Flynn told GT that the “unitary payments” due under the London Contract had increased by nearly £47,000 per month (£564,000pa) from April 2009 and produced documents to establish it. The statements were dishonestly made, and the documents were forged. It was only on the basis of these alleged payments that the London Contract appeared to be profitable.
Grant Thornton argued unsuccessfully that they couldn’t be responsible for all the losses. The judges found in the company’s favour.
The Financial Reporting Council did pass its findings to the Serious Fraud Office but so far it appears nothing further has happened. Mr Shannon has thought to have moved to Thailand while Mr Flynn remains in Northern Ireland.
The most important development is this judgement could form a major piece of caselaw if any other major accountancy firm does not do its auditing job properly. It is a big shot across the bows of the big four accountancy firms to be more diligent.
I remember when we sat on the road outside Westminster at the Protest 2 years ago One lady mentioned to me how uncaring her own slightly older sister was about her younger sister having her pension stolen off her …I have a similar situation with quite affluent older sisters 👯♀️ house owners in nice ares ,holidays ,plenty of money & there pension, & one has a private pension also …. but they think it’s fine that there younger sister didn’t get hers, & I don’t own a house ,private renting worked for 50 years wages were always low but they have no idea what it’s like to struggle , they have no empathy for the 50’s women , I’ve seen a lot of the 40’s women “ I’m only speaking about the ones I know” they appear “ as the song goes “comfortably numb “ uninterested in the plight of there younger sister’s one might even say they appear selfish … at 64 I was made redundant due to Covid From my hard work cleaning job , now I’ve got a job “ that’s been called on the internet by many employees as “ slave labour “ low pay wears you out job ,,,,,,I’m constantly waking through the night dreading going to this job …haven’t got the energy to do anything … there’s no future for me now just 2 years of slave labour & hardly any sleep , apparently not entitled to job seekers, cos government changed there policy on that as well , so they have done for this old lady …… & I’ve a feeling sadly girls I’m not the only one facing this uncaring country at the moment hope we live to see the sun rise …. Miriam