Tag Archives: grant thornton

Assetco: The negligent privatisation audit that has cost Grant Thornton over £20m in damages

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Top accountancy firm loses appeal over failing to spot forged documents in huge London fire brigade privatisation scandal

A London fire engine -once owned by Assetco

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.

Fraudster John Shannon when he was boss of Assetco

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.

Revealed: The bucolic wine buff accountant who let privatisation spivs fiddle London fire brigade

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Robert Napper: Pic credit: Twitter

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He has been fined £120,000 and barred for three years from his professional body for ” professional misconduct ” by the Financial Reporting Council in April for his part in allowing a now bust private firm to fiddle its income from London Fire Brigade.

But before this happened Robert Napper, a partner with Grant Thornton, one of the big accountancy names, had already quietly retired with his pension to live in the rural Oxfordshire countryside and become a pillar of the local community.

Grant Thornton will have to pay a £2.3m fine for their part in allowing Assetco to fiddle the books after the company took over responsibility for maintaining London’s 700 fire engines in a privatisation deal which went badly wrong.

The scheme had been pushed by the now disgraced former Tory chair of the London fire brigade, Brian Coleman, to save money and curb the power of the Fire Brigades Union. Coleman was wined and dined by the director John  Shannon and given a Christmas hamper from Harvey Nicks for his trouble.

The union all along protested about the way the company was run – but even they did not know it was fiddling and inflating the books with false invoices for claims that were never made ( see my earlier blog).

To be fair neither Robert Napper nor Grant Thornton made any money out of it – indeed the auditors ended up as creditors with unpaid bills. But they did allow enormous latitude to the directors of Assetco, John Shannon and Frank Flynn, to fiddle the books and rip off the company, the shareholders and ultimately the taxpayer.

So who is Robert Napper who got duped? He lives in East Hagbourne in South Oxfordshire near Didcot.  It is a village of 1882 people with  a mixture of  modern properties (where he lives)  and many  chocolate box cottages. It has a community shop and post office which Robert Napper is one of the directors.

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Village Cross at East Hagbourne. Pic Credit: Creative Commons Rob Stallard

He was a senior accountant with 23 years experience who as a partner – one of the top paid jobs at Grant Thornton –  and should have known better. The report by the FRC distinguishes between his role and junior staff who were inexperienced in handling Assetco’s accounts.

It also turns out that he is a serious wine buff – his Twitter account includes many pictures of fine wines- and the best food to accompany it. Among these are his Christmas 2015 selection ( see below).

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Robert Napper’s Christmas wine collection

He will have to pay the fine in instalments. I contacted him to ask him if he had anything to say about the scandal or whether he knew the whereabouts of the people who had duped them.

He said he could not comment because of legal reasons though he did say he was not appealing the findings against him.

As for John Shannon and Frank Flynn they appear to have fled the country – he thought one of them could be in Thailand. Anyone who knows where they are could  they contact me and I would be very grateful.

 

 

Revealed: Faked bills and dodgy deals How Assetco conned auditors and ripped off London and Lincoln’s firefighters

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london fire engine

A London fire engine then owned by Assetco

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The scandal that led to the huge £3.7m  fine ( reduced to £2.4m after co-operation) against  accountants Grant Thornton and ex  partner Robert Napper is revealed in a dry 56 page report by the Financial Reporting Council.

The biggest con by the privatised company  Assetco responsible for  owning and maintaining the capital and Lincolnshire’s fire engines was in faking additional cash payments from London’s fire brigade when it was asked to do  more work.

Directors of the company took advantage of three extra requests that were approved by London fire brigade – involving new equipment for fire engines and emergency training for 700 of the capital’s firefighters.

In all three cases they fiddled the books to boost the value of the company to shareholders and lied about the cost of the contracts to  gullible auditor Robert Napper and  accountancy firm Grant Thornton.

The London fire brigade wanted its engines to be equipped with new foam pumps and thermal imaging cameras. Under the privatisation deal they could charge large sums of money per month  under a  leasing deal for fitting this equipment. But the greedy directors were not satisfied with this great deal. They decided they wanted icing on the cake and claimed even more to make their company look more profitable. And not just a few pence -literally millions of pounds.

The new foam pumps meant that Assetco could and did charge an additional £2.6m to London fire brigade. But the directors claimed that additionally they were charging London fire brigade another £46,975 a month from April 2009. This produced promised income of another £4.991 million over the next 14 years. But Assetco never even sent an invoice to the London fire brigade. for these sums. It was a complete fake – the money did  not exist and the auditors didn’t spot it.

The same applied to the thermal imaging cameras. The 140 cameras were leased to London fire brigade at a cost of £331,443 a year or £27,620 a month.  But then the directors told the auditors that it had cost over £1m to purchase and fit the cameras and that the London fire brigade was paying over £57,000 a month. This generated a total of  over £5,875m over 13 years. Again this was a complete fake and it would have shown a profit margin of 80 per cent. This went unchallenged by Mr Napper despite queries by his team.

Finally they fiddled the emergency training programme for 700 firefighters. They claimed they were receiving another £71,000 a month for ladders and hoses and guards that they were already were being paid under an existing contract.  They also fiddled the costs. They said it would only cost the company £2m to provide it over five years. In fact it was over £6m.

This catalogue of deceit was aimed at inflating the value of the company. It was particularly despicable because the directors were using the need to improve London’s  fire fighting capability as a vehicle to fiddle the books. But that was not all they were doing and I will come back to it in another blog.

 

 

 

 

 

Fined £3.5m for professional misconduct: Grant Thornton approved dishonest accounts for London and Lincolnshire’s privatised fire engines

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GrantThornton

Grant Thornton: A big fine for professional misconduct Pic credit: Wikipedia

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In 2011 this blog was involved with the Fire Brigades Union in investigating the handing over of London’s and Lincolnshire’s  fire engines to a private company called Assetco.

The company nearly went bust  in 2011 owing £140m. Shareholders and banks hoping to make money from privatising the emergency services lost millions and small shareholders were ruined.

The  City Hall Tories under Brian Coleman, then  the elected chair of London’s fire authority now nowhere in public life, saw the  flagship policy as a future blueprint for privatisation. Instead it was a disaster compounded by an Old Etonian baronet buying London’s fire engines for £2  from Assetco only to go bust himself leading to another company taking over.

Now six years later the grim and unsavoury truth has come out. A report from proceedings taken by the Financial Reporting Council against the auditors of the Assetco, big accountancy firm, 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. Neither Grant Thornton nor Mr Napper made any financial gain out of the scandal.

The facts are staggering. Over two years Grant Thornton   were found to have committed no fewer than TWELVE  cases of professional misconduct which meant the accounts presented to the public were mainly fictitious. Robert Napper was found to have  ELEVEN cases of professional misconduct.

As the report says: “This misconduct adversely  affected or potentially adversely affected a significant number of people in the United kingdom.”

It points out shares were trading at £6 during this period and fell to £1 in 2011 when the real situation was known. The report adds: ” The share price in 2009 (£6) reflected financial statements that contained an inflated balance sheet and included some significant revenue that was fictitious.”

An accompanying report reveals the scale of the dishonesty and cover ups. They range from fictitious payments amounting to millions of pounds from City Hall to buying up a firm for a relative  with shareholders money and creating a rental firm that let property out to directors. So extensive was the deception that I intend to use further blogs to describe in detail what happened.

As the report says: ” GT and Mr Napper were deliberately misled by AssetCo’s  management but the exercise of proper scepticism would have led to dishonesty being uncovered.”

Grant Thornton  was fined £3,500,000, reduced to £2,275,000 after  they co-operated with council and given a severe reprimand;

Mr Napper was fined  £200,000, reduced to £130,000 after  he co-operated  with the inquiry

Grant Thornton also had to pay £200,000 as a contribution to the Executive Counsel’s costs.

Mr Napper, an accountant with 23 years experience, was seen to have acted so badly that they have also recommended he be barred for three years from membership of his professional organisation ( the ICAEW –Institute of Chartered Accountants in England and Wales) for breaching  their code of ethics.

Mr Napper, from South Oxfordshire has since retired.  The Executive Counsel of the FRC said: ” The misconduct of Mr Napper , in its totality, is so damaging to the wider public and market confidence in the standards of members and in the accountancy profession and the quality of corporate reporting in the United Kingdom that removal of the member’s professional status is the appropriate outcome in order to protect the public or otherwise safeguard public interest”.

Further inquiries by me show Mr Napper in his Linked In page was publicly  endorsed by seven people including  Perry Burton, head of London audit, for Grant Thornton. and Natasha Pettiford-White, an executive assistant at Grant Thornton. Mr Burton’s recommendation would carry considerable weight as he is an auditor of 20 years experience.

Gareth Rees QC, Executive Counsel to the FRC, said:
“The Respondents have admitted widespread and significant failings in their audit work, and GT specifically has accepted there were serious failings in the execution of certain aspects of the firm’s quality control procedures. This misconduct is rightly reflected in the seriousness of the sanctions, such as the exclusion of Mr Napper from membership of the ICAEW ( the accountants professional organisation) and the fines on both Respondents.”

Matt Wrack, general secretary of the FBU, said :

“It is mystifying that central government did not spot this scandal, when the Fire Brigades Union and firefighters themselves were warning about it for years.  Leading politicians and fire service managers were responsible for allowing a gang of spivs to take over essential equipment and vehicles, the property of the people of London and Lincolnshire.  Both of the authorities for these regions need to investigate fully to ensure this never ever happens again. ”

Grant Thornton were approached and did not reply. I have written about this in Tribune magazine.

In my view this shows that one of our big accountancy firms was derelict in its duty in protecting the public from people who obviously wanted to fleece shareholders and took no care in auditing the books of people in charge of vital emergency  vehicles in London  and Lincolnshire. It also shows the real dangers of privatisation and we cannot  trust big accountancy firms to act in the public as opposed to their private commercial interests. You will see the scale of the scandal in future blogs.

 

 

 

 

 

Exclusive :The district auditor’s disgraceful response to the Barnet MetPro scandal

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Andrew Dismore: Right to complain Pic courtesy: thejc.com

The scandal over  the employment of security guards by MetPro Rapid Response is one of the worst examples of a council failing to monitor outsourcing of a service – the only one I know where an authority never even signed a proper contract. See my earlier blog at http://bit.ly/ktHKbs

 So it is  outrageous that  Paul Hughes, the  district auditor,has refused a request from Andrew Dismore, the former MP for Hendon and now Labour’s challenger to Tory Brian Coleman, for a full scale public interest inquiry into the affair.

Andrew rightly decided to report the council to the district auditor and call for a public interest report into the scandal. In his letter to Mr Hughes he pointed out:” Having been at the Council meeting when the Robocop style of security used by MetPro at the request of the Council first came under criticism, the consequent investigations have revealed a catalogue of catastrophic failures by Barnet Council and its leadership.

” This poor contracting and lack of financial control  is not a one off, as the Iceland investment fiasco and cost overruns of the Aerodrome Rd bridge confirm.

“What is especially worrying, is that the internal audit found there were inadequate systems to ensure the same thing did not happen again. The “One Council” initiative will create dozens of opportunities for more to go wrong too, with consequent mammoth losses to Barnet’s long suffering tax payers, if immediate corrective action is not taken.”

Mr Hughes reply is equally instructive:

“Where the body is already taking action to remedy deficiencies the auditor may conclude that a Public Interest Report at that point would only have limited impact and may in fact have the effect of unnecessarily undermining public confidence in a public body” (my italics).

“Therefore,whilst we consider that the matters raised in the internal audit report do represent serious internal control issues, our view is that a public interest report is not required at this time.”

He goes on to say the reasons he has refused a further inquiry is because Barnet has promised to investigate further and reform its procedure and because ” the matter is already in the public domain”.

He leaves a faint hope of reconsidering his decision if the council responds by significantly delaying reforms or the failure is found to be systemic (by the council investigating itself).

Barnet has responded. It is cutting  nine more jobs in the department supervising contracts – presumably to increase the scope for more mistakes.

 As  the leader of Barnet Labour Group, Alison Moore  says:” How will cutting posts help deliver an “effective and responsive” procurement service when the council are about to embark on complex privatisations?  I suspect this decision has more to do with saving money than sorting out the service. This is a barmy proposal.”

Andrew Dismore has challenged this pathetic decision of  the auditor whose company Grant Thornton managed to miss the MetPro scandal for three years and pass Barnet’s accounts without any question.

His letter warns: “Nothing could further undermine public confidence in Barnet’s administration, which is now at rock bottom as any objective resident would confirm and as evidenced by the Council’s own satisfaction surveying.”

 “My request for the public interest inquiry was not just in the context of Metpro, but more generally into Barnet’s contract letting and monitoring processes and checks. Only this week, the Hendon Times has carried on its front page yet another example, this time in the contracting (or lack of it) for care services, where failings at the social care centre with whom the Council failed to follow proper procedures and checks and to agree a formal contract actually led to the death of a resident with learning difficulties. Barnet are serial offenders presiding over a catalogue of procurement disasters. ”

…” there appear to be more deep seated problems with procurement and contracts that throw real doubt about the council’s capacity to take on the highly risky “easyCouncil” service outsourcing.  In the circumstances, I would invite you to reconsider your decision. ”

Mr Hughes will know that a public interest report by him could have wider implications for other councils. Given Barnet boasts it is a Tory flagship council that is blazing the privatisation trail – that is even more reason to check its public probity in this area.

Of course  there might be other reasons. I am sure Mr Hughes is a man of such probity that he  couldn’t have reached his decision in the knowledge that Grant Thornton, under new audit reforms following the abolition of the Audit Commission,, would need to persuade Barnet to continue its lucrative auditing contract. I mean he wouldn’t decide the commercial profits of Grant Thornton are more important than public probity. Or that given under the present rules Barnet will have to pay for the public interest report, that he could save the council money and avoid annoying Brian Coleman by refusing to investigate.

But you don’t have to sit back. If you, and say, all the bloggers in Barnet think Mr Hughes is wrong you can demand he reconsider. I suggest you do this to back up Andrew Dismore. You can email the auditor at paul.hughes@uk.gt.com .

A judge is likely to look sympathetically at large numbers of residents demanding the district auditor investigate  the £1.3m non contract with MetPro and Mr Hughes’ decision is subject to judicial review. I hope it won’t have to come to this.