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BT auditors warn of ‘material weaknesses’ in financial controls

BT phone box peeling.jpg

BT’s own auditor, KPMG, has criticised the group’s internal controls following the 2017 scandal when it wrote off £530 million of losses in its Italian business.

BT appointed KPMG as its auditor in 2017, following the Italian scandal, when the company announced “inappropriate behaviour in the Italian business … improper accounting practices and a complex set of improper sales, purchase, factoring, and leasing transactions”.

Now, accountancy publication Compliance Week has dug out a letter written by KPMG to the BT board that has been published on the website of the US Securities and Exchange Commission (SEC). KPMG says: “BT Group plc did not maintain effective internal control over financial reporting as of 31 March 2020 because of the effect of material weaknesses on the achievement of the objectives of the control criteria.”

The auditor’s warning shows that the Italian scandal continues the threaten BT’s business. A report last year showed that Italy’s Guardia di Finanza – the financial police – had seized emails from senior executives of BT in London and senior executives of BT Italia.

The emails, said the Guardia di Finanza, as quoted by the Reuters news agency, contained “‘insistent’ requests by the leadership of the parent company aimed at achieving ambitious economic targets, even using aggressive, anomalous and knowingly wrong accounting practices”.

According to the 2019 report, 23 individuals were being investigated, including three BT executives.

The news agency said that “Italian prosecutors allege that a network of people at the unit exaggerated revenues, faked contract renewals and invoices and invented bogus supplier transactions in order to meet bonus targets and disguise the unit’s true financial performance”.

Luis Alvarez quit as CEO of BT Global Services in 2017. Bas Burger, former head of BT in the US, took over the role and started a comprehensive restructuring of the business, which has seen the group sell off a number of its European business operations.

Last August a US law firm started a class-action suit over the scandal against former CEOs Ian Livingston and Gavin Patterson, previous CFO Tony Chanmugam, as well as Alvarez and Nick Rose, who chaired the group’s audit and risk committee.

At the time of its appointment as BT auditor, KPMG’s global head of telecoms and media, Alex Holt, said: “We look forward to working with them at a critical point for BT, set against a backdrop of unparalleled industry transformation.”

 

 

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