Auditors ‘could have missed fraud’ at Lloyds and RBS

AUDITORS might not have picked up on financial mismanagement at Lloyds and RBS, so great was the confusion surrounding the banks’ assets in 2008.

So concluded the Public Accounts Committee, which today called it “alarming” that neither lender was able prove their assets were not linked to fraud or criminality when they entered the Treasury’s Asset Protection Scheme in January 2009.

The scheme was designed to protect the banks from further exceptional losses and help restore public confidence, but allegedly brought to light a lack of “appropriate and robust data on [bank] assets”. PwC and Deloitte carried out the 2008 audit of Lloyds and RBS respectively.

The committee questioned “management controls … the efficacy of regulatory oversight and the quality of audit provided to the banks”, in a damning report that also attacked the Treasury’s lack of teeth in dealing with the floundering financial institutions.

It said lack of clarity surrounding the banks’ assets put the Treasury in a difficult position, and revealed ministers had to give direction before the scheme could progress.

The committee also pounced upon banks’ failure to meet lending targets for business, and berated them for assuring the Treasury that the goals would be reached, with the eventual shortfall standing at £30bn. The Treasury was criticised for failing to mete out sanctions, and for gaps in its analysis of how RBS should pay for the protection scheme.

Lloyds has since left the scheme, but the committee warned further economic difficulties could result in RBS remaining in the protection mechanism “for the foreseeable future”. It called upon the Treasury to ensure RBS complies with the scheme and puts the interests of the taxpayer first, by focusing on maximising returns on the insured assets. “The interests of the taxpayer must not in any way be sacrificed for the interests of the bank,” concluded the report.

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