PwC fined £5 million for ‘misconduct’ in Connaught audit

Big Four accounting firm PwC has been charged with ‘misconduct’ over its auditing services and has to pay the £5 million, the largest fine ever to be administrated by the Financial Reporting Council, after the downfall of property services group Connaught in 2009.

The collapse of Connaught resulted in a loss of jobs for 10,000 former employees, as the firm was unable to repay the £220 million debt in 2010. Following the organisations collapse, the Financial Reporting Council (FRC) was made responsible for executing an initial five year investigation into PwC’s audit of Connaught in 2009. Seven years on, PwC has been handed a record-breaking £5 million fine due its inability to save social housing and public service outsourcing firm Connaught – having been initially thought to have been in line for an even larger £6 million.

The investigation came to an end after the FRC accused a retired partner PwC of misconduct, and while the individual was later fined £150,000 and reprimand, PwC had to pay an additional £1.5 million interim payment to reimburse the FRC’s legal costs. Evidence since gathered pointed the watchdog toward three different areas including mobilisation costs, long-term contracts and intangible assets, for which the consulting firm have now been held accountable.

The £5 million fee is the highest ever issued by the FRC, but PwC has been on the receiving end of a number of hefty fines in recent years. In 2016 the firm was also fined £3 million for misdemeanours relating to its auditing services to the financial services group Cattles, which also resulted in that company’s bankruptcy. Four years before, PwC had to pay £1.4 million, as it was admonished for its role in compiling the reports for the Financial Services Authority on JPMorgan Securities Limited. Allegedly JPMorgan failed to separate client funds from the company funds, which not only implicated PwC, but also highlighted the shortcomings within the regulatory network themselves, something to which attention was called by a recent report presented to European Parliament.

In the presence of the Connaught tribunal in March PwC made a public apology regarding their failure to provide appropriate scepticism nor collect enough evidence for the audit of the 2009 accounts which were a follow up to profit warnings later in 2010. “Since 2010 when the case began, we’ve worked hard to improve our procedures and processes. Audit quality is of paramount importance to PwC and the FRC’s annual audit quality assessments have shown a trend of improvement in our work over several years.”