Deloitte's role in auditing Taggarts owner Lookers to be probed by watchdog

Deloitte is under investigation by the industry watchdog over its role in auditing Lookers, the car dealership giant with a string of Scottish showrooms, between 2017 and 2018.

Lookers is the owner of the long-established Scottish Taggarts car business.

The Financial Reporting Council (FRC) said it would be looking at the audits carried out by the Big Four accountancy firm which subsequently became part of an investigation by the Financial Conduct Authority (FCA) with allegations of fraud and black holes in Lookers’ accounts.

Deloitte was replaced as the car dealership’s auditor last year, having held the role since 2006, by BDO.

The FCA recently dropped its investigation into Lookers, which was launched in 2019 and which had seen the firm set aside £10.4 million to cover potential fines.

In dropping the case the FCA said there were “concerns” over the “historic culture, systems and control” but did not censure the business – owner of the long-established Taggarts business and some Audi dealerships in Scotland.

Last November, Lookers revealed a much-delayed annual loss of £45.5m for 2019 after uncovering £300,000 of fraud by a former employee and tens of millions of pounds of inflated profits at a time Deloitte was signing off its accounts.

Profits were overstated by £25.5m over a number of years and a black hole of £21.8m was found. A £41.9m profit in 2018 was also lowered by £7.2m following an internal investigation into possible fraud.

The delayed accounts had seen the company suspended from the London Stock Exchange, but it has subsequently relisted and undergone a major overhaul and boardroom clearout.

The FCA investigation has been hanging over the firm since it was first launched back in June 2019 after an internal audit identified concerns with its sales process.

In January, Lookers revealed that it had swung to a £50m loss in the first-half of 2020 as the pandemic forced its showrooms to close for large parts of the period.

The company said its statutory pre-tax loss followed a profit of £19.6m in the first half of 2019. It was a big hit for the business, which also saw a 40 per cent fall in revenue to just under £1.6 billion in the period, its delayed results revealed.

But the group signalled that it had seen a more hopeful second half, and expects performance over the last six months to be ahead of 2019, partly offsetting the dismal first half.

“Trading in the second half of 2020 was encouraging, underpinned by significant outperformance of the retail UK new car market, continued resilient trading in used and aftersales, and increasing used car margins,” the firm noted.

It is also set to make some financial gains from a restructuring programme, which included closing a dozen showrooms and making 1,500 people redundant. Those showroom closures came on top of 15 undertaken in 2019.

Chief executive Mark Raban told investors at the time: “2020 was a challenging year for Lookers, managing the impact of the Covid-19 pandemic and a number of legacy issues facing the group, which required significant action to restructure and improve the business for the long term.”

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