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Financial Reporting Council to investigate PwC and ex-Connaught employees

PwC and former Connaught employees are facing an investigation into their conduct relating to the 2010 collapse of social housing firm Connaught.

The Financial Reporting Council’s executive counsel has delivered two disciplinary formal complaints against Connaught’s group financial director at the time, Stephen Hill, and its deputy FD (responsible for treasury management) David Wells, in relation to the preparation and approval of Connaught’s interim financial statements for the six months to 28 February 2010.

The complaint alleges that Mr Hill and Mr Wells “breached the fundamental principle of integrity” in relation to accounting for a short-term loan provided before the half-year end, and that “their conduct fell significantly short of the standards reasonably to be expected of members of the ICAEW”.

Mr Hill had announced before the company’s collapse that he would depart that October, four years after joining from Serco.

The FRC’s executive counsel has also delivered disciplinary formal complaints in connection with the conduct of Stephen Harrison (PwC’s senior statutory auditor and audit engagement partner) and PwC in relation to the audit of the financial statements of Connaught plc and its subsidiaries for the year ended 31 August 2009.

The complaint alleges that Stephen Harrison and PwC “failed to act with competence and due care in relation to the audit of the financial statements for the group”.

Construction News understands the formal complaints have been lodged following a five-year investigation.

Connaught collapsed in 2010, leaving 1,400 people redundant and £100m owed to subcontractors, with more than £200m of debts, after a period of rapid expansion.

It followed a profit warning to the stock market in June 2010 after a review of the business identified 31 contracts in its social housing division where capital spending would be deferred, hitting revenue by £80m and profit by £13m.

A PwC spokesman said: “We are disappointed that over five years after the event the FRC has decided to pursue complaints against the firm.

“We have co-operated fully with the FRC throughout their lengthy investigation and will now consider its concerns and respond appropriately.”

The FRC is the UK’s independent regulator responsible for promoting high-quality corporate governance and reporting to foster investment.

It will now carry out further investigations before a tribunal is set and it is decided whether to bring disciplinary proceedings.

Connaught’s collapse was subject to a separate investigation by the Financial Services Authority between 2010 and 2012, which was then dropped.

The financial ombudmsan had been investigating whether the company’s directors or senior managers broke financial rules.

Mr Wells declined to comment. Mr Hill could not immediately be reached for comment.

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