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Britain’s Financial Reporting Council (FRC) fined Deloitte £6.05 million on Thursday, October 8, over failures in audits of transport operator Go-Ahead Group covering the financial years 2016 to 2020. The regulator said the shortcomings involved scrutiny of subsidiaries that retained or recognised as profit more than £30 million in public money owed to the Department for Transport.
The sanction was reduced from an original £11 million figure following adjustments for Deloitte’s cooperation, admissions and early resolution of the case. The FRC also issued a severe reprimand, declared that the audit reports did not meet relevant requirements and required Deloitte to report to its FRC supervisor on the causes of the failures and the effectiveness of remedial steps.
Overpayments were not returned to the Department for Transport
The FRC’s findings concern audits of Go-Ahead Group’s accounts for the years ended July 2016 through June 2020. The regulator said London & South Eastern Railway had received erroneous overpayments from the Department for Transport before Deloitte became Go-Ahead’s auditor. The subsidiary was obliged to repay the money but retained it without informing the department.
According to the FRC, the subsidiary transferred £2.4 million into profit in financial year 2016 and set aside a further £27 million from 2016 to 2020 under a later franchise agreement. The department discovered the issue in 2021, declined to renew the franchise, sought recovery of the overpayments and fined the subsidiary £23.5 million, the regulator said.
Regulator identified failures across multiple audits
The FRC also cited London & Birmingham Railway, another Go-Ahead subsidiary. After its franchise ended, the company released £5.6 million owed to the department into profit in financial year 2020. The regulator said the subsidiary attempted to conceal the treatment through the wording of a note in its accounts.
In its account of Deloitte’s audit work, the FRC said the firm did not ask enough questions, apply sufficient professional scepticism or give adequate weight to evidence indicating fraud risk. The regulator described the breaches as a concerning pattern of insufficient scrutiny of decisions and actions that it said were clearly questionable.
German subsidiary’s contract estimates also came under scrutiny
The findings extended to Go-Ahead Bayern GmbH, Go-Ahead’s German subsidiary. The FRC said information supplied by Go-Ahead changed the estimated value of future cash flows from an €8 million loss to a €3 million gain, and that Deloitte did not scrutinise the revised information adequately.
A provision of €8.1 million for loss-making contracts was recorded in the 2020 financial statements and later restated to €49.5 million in 2021. The FRC said it closed its investigation into the 2021 audit in December 2024 without taking action. That closure was separate from the enforcement action over the earlier audit years.
Deloitte must report on corrective measures
Beyond the fine and reprimand, Deloitte must provide its FRC supervisor with a report covering the root causes of the failures, the actions taken and empirical evidence showing how those actions reduce the risk of recurrence. Deloitte also paid the costs of the investigation, according to the FRC’s findings as reported on Thursday.
The investigation began in 2022 and covered Go-Ahead’s financial statements for the years ended July 2016, June 2017, June 2018, June 2019, June 2020 and July 2021. The settlement announced on October 8 addresses the audit failures relating to 2016–2020; the regulator’s separate closure of its 2021 audit inquiry without action marks the latest reported procedural outcome.
The penalty adds to scrutiny of audit work at a transport group whose subsidiaries held substantial sums due to the government. The FRC said the public-money exposure was reflected in the level of the sanction. The regulator’s required follow-up report will assess Deloitte’s stated corrective measures, but the sources reviewed did not specify a deadline for that report.
