Deloitte UK boss 'lacked competence'

Parmalat accountants' UK chief had central role in Barlow Clowes investment scandal
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The Independent Online

Deloitte & Touche, one of the two audit firms involved in the ¤10bn (£7bn) Parmalat scandal, is run in the UK by an accountant who was at the centre of the Barlow Clowes affair and who was officially reprimanded for a lack of professional efficiency, conduct and competence by the accountancy watchdog.

Deloitte & Touche, one of the two audit firms involved in the ¤10bn (£7bn) Parmalat scandal, is run in the UK by an accountant who was at the centre of the Barlow Clowes affair and who was officially reprimanded for a lack of professional efficiency, conduct and competence by the accountancy watchdog.

The Barlow Clowes affair in the late 1980s cost the government £150m in compensation to thousands of mainly elderly investors, many of whom lost their life savings when Barlow Clowes was closed down by the Department of Trade and Industry in 1988.

Peter Clowes and others were jailed in 1992 for their part in the affair, which remains one of the worst scandals to hit Britain's savings industry

John Connolly is now the senior partner and chief executive of Deloitte in the UK but he had a central involvement with Barlow Clowes and companies connected to it. He was heavily criticised by the accountancy profession in 1995 for his role in the Barlow Clowes affair when the official report into the scandal was published.

The fact that an accountant with such a controversial history is running Deloitte's UK operations will be a major embarrassment for the accountancy firm embroiled in the Parmalat scandal, which has engulfed Italy's political and business elite. The UK operations of Deloitte were not involved in the audit of Parmalat. Neither was Mr Connolly involved in Parmalat.

When asked about Mr Connolly's involvement in the Barlow Clowes scandal a spokeswoman for Deloitte said: "We are not going to comment on this occasion. We think it is in the past."

The official investigation by the Joint Disciplinary Scheme, the accountancy watchdog, dedicated the whole of the 81-page report into Mr Connolly's involvement with the audit of Barlow Clowes, specifically in relation to a key deal where Barlow Clowes was sold to another company called James Ferguson in a reverse takeover. As part of the deal, James Ferguson shareholders relied on Mr Connolly for accurate financial data about the true state of the Barlow Clowes finances.

The report was damning of Mr Connolly's professional conduct in the affair and ordered him to pay £40,000 in costs. The report said: "...The committee has found that the professional efficiency, conduct and competence of Mr John Patrick Connolly fell below the standard that should be displayed by, and may properly be expected of a chartered accountant who is the second partner on work done and services provided as reporting accountants."

It ordered Mr Connolly to be officially reprimanded. During the James Ferguson transaction the investigation found that Mr Connolly had failed to properly ascertain certain key facts about the state of the Barlow Clowes finances.

"As a result of such failure there were serious and material omissions in the information contained in the Touche long form reports and in the Circular sent to the Ferguson shareholders.

"As a result, Touche's short form report included in the circular did not give a true and fair view of the profits record or liabilities of the relevant Barlow Clowes entities as at 30 September 1986." The report added that Mr Connolly's failures "...resulted in fictitious income being included in the accountant's report".

At the time the report was published, Touche said it reflected a complete lack of balance and rejected its findings.

Mr Connolly went on to be elected as senior partner of Deloitte & Touche in the UK in 1998. However, his close involvement with the Barlow Clowes scandal is embarrassing for the Deloitte group at a time when its role as group auditor to Parmalat is under increasing scrutiny. Two partners in Deloitte's Italian affiliate have been placed under investigation by prosecutors probing the Parmalat scandal.

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