Deloitte fined £4.2m over Serco tagging scandal-era audit

The accounting watchdog has fined Deloitte over £4.2m for its audit of financial statements by Serco at the time of its electronic tagging scandal.

The Financial Reporting Council (FRC) announced a series of penalties a day after Serco, the outsourcing specialist, revealed a settlement with the Serious Fraud Office, including the payment of a £22.9m fine.

The so-called deferred prosecution agreement, which is the subject of a court hearing due on Thursday, saw its UK subsidiary Serco Geografix take responsibility for three offences of fraud and two of false accounting.

The company faced allegations it had been charging the government for supervising the movements of people who were either dead, in jail, or had left the country between 2010 and 2013.

The FRC said its penalty against Deloitte applied to work on Serco Geografix accounts in the years ended 2011 and 2012.

It said the business services firm would have paid a £6.5m fine but for a settlement discount. A £300,000 contribution to the watchdog's costs was also agreed.

An audit engagement partner, Helen George, was fined £97,500 and also "severely reprimanded", the FRC said, adding that both the company and Ms George had admitted misconduct.

The audit industry - and the dominance of the so-called big four firms - has been under particular scrutiny since the collapse of the outsourcing-to-construction group Carillion.

A rush of other recent penalties included a £4m fine against KPMG for its work in 2009 on the Co-op Bank's accounts ahead of its near-collapse.

A series of reforms that aim to bolster the quality and scope of audit work will also see the FRC replaced with new body the Audit, Reporting and Governance Authority after fierce criticism of the regulator's oversight of audit standards.

A Deloitte spokesperson said: "We recognise and regret that our audit work on Serco Geografix Limited in 2011 and 2012 was below the professional standards expected of us.

"We have a programme of continuous improvement for our audit quality processes, which have evolved significantly since these audits were performed.

"We have also specifically agreed with the FRC certain actions focused on learning lessons from the shortcomings in this audit work."