Mixed reviews for Deloitte in MG Rover report

Deloitte has come under criticism in the report probing the collapse of MG
Rover, the former Midlands car giant, but received praise for some of its work.

The 850-page study into the collapse of the former car giant, which left
creditors £1.3bn out of pocket, has finally gone public after four years of
investigation and a £16m bill for the taxpayer.

The criticisms were levelled at Deloitte specifically for its work on the
Phoenix Four’s acquisition of most of BMW’s Rover loan book, called Project
Platinum.

On Project Platinum, the report said Ian Whyte, one of the key people
concerned with the disposal of the Rover loan book on behalf of BMW, was also at
that time potentially involved in MG Rover’s bid for the book, and Deloitte
should not have taken information from him on the deal in such circumstances.

“[Whyte] thus had a conflict of interest and should not have continued to be
involved with the sale of the loan book without informing BMW that there was a
possibility of his taking part in an MBO which, in our view, he did not do,”
the report said.

“Neither should Deloitte have put themselves in a position where they were
receiving information (and seeking it) in circumstances where there was every
reason to think that BMW did not know him to be an MBO candidate and where, in
our view, those concerned must all have realised that there was at least a
strong risk that BMW was not aware of the possibility of Mr Whyte being involved
in an MBO.”

“In effect, Deloitte were, as it seems to us, seeking to use the prospect of
involvement in an MBO to persuade Mr Whyte to supply to them potentially
confidential information, or information BMW would or might have preferred Mr
Whyte not to disclose.”

The report shows Deloitte made £28.75m in non-audit fees between 2000 and
2005, 15 times more than it received in total audit fees.

Corporate finance advice generated most of these revenues.

“Such transactions included Project Platinum, for which Deloitte received a
fee of £7.5m. Project Aircraft, for which Deloitte received fees of £1,925,000
plus VAT, and Project Trinity, for which Deloitte received fees of £1,099,078
plus VAT,” the report said.

Business Secretary Lord Mandelson has decided the report should be referred
to the Financial Reporting Council.

However, Deloitte’s role as auditors was largely praised.

“In general, we consider that the audits were well planned and executed.
Likewise, although we agree with a number of matters raised by the FRRP in
respect of accounting issues and disclosures included in the Group’s financial
statements, we believe that these too are relatively minor.

“It might be suggested that the high level of Deloitte’s non-audit fees,
which amounted to £28.75m (some 15 times Deloitte’s total audit fees), might
have posed a threat to Deloitte’s independence and objectivity in respect of
their audits of the Group. However, we have found no evidence to suggest that
Deloitte’s independence and objectivity were compromised by the level of
non-audit fees.”

The report also backed the firm’s decision to sign off the accounts before MG
Rover collapsed.

“We consider that it was appropriate for the Group’s 2003 financial
statements to have been prepared on a going concern basis.

“We are also of the view that the disclosures in the Group’s 2003 financial
statements were adequate in terms of the details that needed to be disclosed
according to the relevant technical guidance in place at the time.

“Thus, Deloitte quite properly discharged their duties in this respect,
drawing attention to the uncertainty surrounding the completion of the SAIC
transaction and receipt of the anticipated funding by the Group in their
unqualified audit reports.”

Deloitte said: “The Inspector’s report confirms that our work delivered very
significant value to the group, that our audit opinions were appropriate and tha
t responsibility for managing the group’s affairs and the level of remuneration
rested with the directors.

“We are pleased that the Inspectors have acknowledged that our audits were
well planned and executed, and that they confirmed the objectivity and
independence of our audit work.”