In 2011 I 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 Oxford 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.