In a week where a new prime minister promised to end rough sleeping with £340m, took VAT off electricity bills to save households about £45 a year, and brought back the £2 bus fare from January, Wetherspoon issued its fourth profit warning of the year, Foxtons cut its profit forecast from £23m to £17m, and Mitie agreed a £3.1bn takeover that will take it off the London market after nearly forty years, he question isn't whether any of it was said in good faith. It's whether they have more than good faith as a strategy.
The WayFinders Group are workplace repair experts you can trust to tell you the truth about what is going on in your organisation and fix it.
unsolicited repair advice
This week I have been thinking about the Financial Reporting Council (FRC) fining PwC £3,248,437 over the Babcock International audits, with a further £59,062 fine levied on the responsible audit partner. What caught my attention is that it is the second sanction involving this client. The first, in 2023, covered FY2017 and FY2018, the period immediately prior.
PwC and the responsible audit partner admitted serious and numerous breaches, including failures of professional scepticism across cash pooling, goodwill impairment and the accounting for long-term contracts. Babcock went on to make material restatements in its FY2021 accounts, which is the part that matters to a board: the audits did not surface what the company itself later had to correct.
If you were sitting on that audit committee and you rang me in a panic, here is what I advise:
It is clear that things were missed here by more than one party. I would start by getting the committee to acknowledge, aloud, that PwC has admitted its failures and accepted a penalty for them. However, the committee's own part in the saga is more subtle and easier to leave unspoken: assurances were given in 2023 and received in good faith. Unfortunately good faith is not the same as verification or due diligence.
Before you rush to appoint another audit firm, have the conversation with the relationship partner. What that conversation is for depends on where you are heading. If the relationship is ending, you are there to get an account of what happened inside those audits while someone is still willing to give it; once a tender is underway, candour disappears and the committee loses its only real source on what went wrong. If the relationship is continuing, whether with the same partner or a rotated one, you are there to agree what needs to be different between two parties who will still be working together next year. Either way, firms that have been sanctioned twice usually know more about the causes than the summary judgment records, and they are rarely asked while anyone is still willing to listen.
Whatever comes out of that conversation is what the audit committee takes forward: an agreed account of what happened, consensus on what needs to happen next, and a specific undertaking on both sides so there is clarity going forward.
The issue remains that the accounts were Babcock's and the restatement was Babcock's to own. A failure to surface something does not absolve the board from consequences, reputational, financial or otherwise. That is why the useful questions after a sanction are not what the auditor should have caught, but what the committee accepted without inquiry or interrogation, and what it will do differently with the next assurance it is given.
If there are conversations your board needs to have like this, we can help you find a way forward: [email protected]
The WayFinders Group repairs the internal damage inside organisations restoring their capacity to do what they said they would.
your early warning detection system
ICYMI: Every organisation stands for something and communicates it publicly. The test is what it does when standing by that becomes costly or embarrassing. The entries below are this week's examples of organisations meeting that test or failing it. When one fails, the behaviour and the promise are moving in opposite directions, which creates damage that does not fix itself of its own accord.
⬆ Up (who hit the mark this week)
Gambling Commission Raided two Doncaster premises with police and the council, arresting eight people and seizing just under £9,000 in cash.
Health and Safety Executive Bertschi UK was fined £425,000 after a warehouse supervisor died falling from a loading ramp the manufacturer said needed a handrail.
⬇ Down (who missed the mark this week)
Financial Reporting Council Its revised enforcement procedure took effect on 1 July, three weeks before it cut PwC's fine by 45 per cent for cooperation.
Southern Water Fined £7,127,083 over five illegal sewage discharges, five years after its record £90m penalty for thousands of them.
👁 Watch (who we're watching this week)
Ofcom Its Online Safety Act categorisation register, already a year late, was due this month and July is nearly out.
Care Quality Commission Published an update on how it will keep inspecting local services through the local government, social care and NHS reforms.
repair in the wild
I spoke at Disruptors Festival at LSEG about what leadership feels like when nobody is watching. The image the room took away was the swan: composed above the water, paddling relentlessly underneath. Most leadership models we inherit reward composure and leave no room for repair, so leaders learn to perform certainty instead of admitting what things actually cost. My argument was that repair is not what you do after something breaks. It is an ongoing practice, and the strongest leaders are not the ones who never struggle but the ones willing to look at what needs repairing and commit to it.
this week’s dilemma
Most regulators discount fines for cooperation and early admission, on the basis that it gets findings on the record faster and encourages organisations to put their hands up.
So: if an organisation gets a second fine relating to the same client, should it be allowed that discount a second time?
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Leah Brown FRSA is Britain’s leading workplace repair expert, restoring your organisation's capacity to do what it said it would do.
