By Tom Winnifrith | Wednesday 6 January 2021
The Financial reporting Council has today released the report below, running to almost 300 pages into the crooked accounts of Autonomy and the behaviour of Deloitte and the two audit partners Mr Richard Knights and Mr Nigel Mercer. The key takeaway here is that abetting white collar crime DOES pay.
There is no doubt that Deloitte and specifically Knights and, to a marginally lesser extent, Mercer acted disgracefully. Sales of hardware costs were hidden with the profits generated added to apparent sales of software. By changing the apparent sales mix, margins and thus profits were boosted. And the victims here were investors who bought the shares and especially Hewlett Packard which bought the company for £7.4 billion, something it quickly came to regret.
The FRC states that Mercer and Knights made no personal gain from this but it is clear that they displayed “recklessness” and might even be said to have told porkies when quizzed. Critically the FRC states that neither of the two men appeared to show remorse for their actions indeed Knights tried to portray himself as the real victim here claiming that as a result of having to take early retirement he had lost out on potential earnings of £2 million.
My heart bleeds, do you think we should start a crowd-funding page for the multi-millionare old bastard?
Will Deloitte be shamed by this? Not really. The report makes it clear that it has sinned before but also cites numerous other cases where other Big 4 firms have sinned. If I was the spin doctor PR man for Deloitte I would say “The two partners responsible were rightly slated. Neither is with the firm any more having left some time ago. Like all the Big 4 we accept that there were cultural failings in the past but we have addressed them, now why don’t you go call KPMG and see if it has made any changes?”
And that will work. Deloitte will be fined £15 million with no reduction for co-operating. That is a big fine but is in fact just 3% of 2019 group profits. It probably earned a good chunk of £15 million for signing off on Autonomy’s bent books over many years and in the greater scheme of things it will be seen as another cost of doing business. It will not cause any staff cuts or reduction n partners drawings and as such why should it care?
What about Mercer and Knights? They have both taken early retirement so getting multi-year bans from doing audit work is not going to hurt and Deloitte has said that it will be paying their fines of £250,000 and £500,000 respectively in full. So the two men who are culpable get off scot free. Sure, this will cause a bit of embarrassment at the Golf Club, when Lodge meetings stop being virtual occasions or at the next Conservative Association drinks party. But having risen to partner level at Deloitte, both men will have enjoyed multi million pound career earnings, quite possibly heading towards eight figures. So two old men can enjoy retirement with their fortunes untouched.
Enabling crime does pay. The FRC, laughably, says the severity of these sanctions is needed to send out a signal to others who may be tempted to show such recklessness. I would suggest that the very reverse is true.
Accountancy firms can now see that if they are complicit in one of the biggest alleged frauds in UK corporate history they will be fined an amount which is meaningless. Audit partners who, almost by definition are of an age where retirement is within sight, can see that the wheels of justice turn so slowly that they CAN be reckless, their actions CAN enable crime and by the time this is discovered they can retire early with no subsequent risk of financial penalty.
G&T’s all round at the country club tonight, Knights & Mercer can pick up the tab.
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