Ofcom has hit BT with a £3,727,330 bill for reporting inaccurate financials to the regulator, leading to the telco paying lower administration fees for five years.
One of the ways in which Ofcom funds its activities is to charge certain companies an annual administration fee. This fee is determined by the total revenues generated by the company. As BT reported inaccurate results between 2011 and 2015, it paid lower administration fees throughout this period.
“BT’s cooperation with Ofcom in relation to this investigation has been extensive and productive,” Ofcom said in the report.
“Upon discovery of its error, BT informed Ofcom and committed to remedying the consequences of its error. BT has also undertaken extensive work to ensure that its final resubmitted turnover is complete and accurate; had Ofcom had to carry out this work itself, it is likely to have required significant resource and time to complete.”
Although BT does not have the most glimmering record when it comes to accounting in recent years, the telco did own up to the error rather than Ofcom being informed by a whistle-blower.
The error seems to have been identified by BT Group CFO Simon Lowth, who had only been in the role for a year at the time. In September 2017, documents were submitted to Lowth to review the submission of annual turnover for 2016. Upon reviewing the document, Lowth ordered an investigation into the previous submissions dating back to the original General Demand for Information in 2011.
BT believes the oversight was down to human error, an employee misunderstanding the data sources used, though it still does not the most complimentary light on the accounting practices of the business. Let's call this what it actually is, incompetence and irrelevant as to the fact the original error took place almost a decade ago, it will reflect on today’s reputation.
“BT notified Ofcom that it had miscalculated its relevant turnover between 2011 and 2015, which resulted in BT underpaying its administrative fees owed to Ofcom for those years,” said a BT spokesperson. “We have now paid the full amount outstanding. Ofcom has not imposed any penalty, recognising that we have cooperated and proactively engaged and that we have put in place several steps to ensure the same miscalculations – which were made in error – are not repeated.”
One question which has not been addressed by the telco or the regulator is why this oversight was not caught by the auditor? At the time it appears this role was fulfilled by PwC, and surely this is one of the basic objectives of a financial auditor; to validate financial statement and reports, acting as a safety net. This is clearly a very significant blot on the record and surely a £3,727,330 bill cannot be attributed to ‘immateriality’. Both BT and Pwc should be asking some serious questions.
Aside from this oversight, BT is still reeling from the Italian accounting scandal which was unearthed in 2016. The fraud cost the company more than £530 million, with £8 billion being wiped off the telcos market value in a single day. US investors, represented by law firm Robbins Geller Rudman & Dowd, have recently announced a lawsuit to recover some of the losses.
The £3,727,330 bill might be considered a relatively lenient one, though generally, regulators are kinder to the guilty party if it admits to wrong-doing without prompt. Due to the fact BT identified the error and informed the regulator under its own free will, no fine was imposed on top of the monies owed. The sum was calculated by adding the deficit to interest payments. The Bank of England base interest rate during the 2011-15 period was increased by 1% to get the total.
It is difficult to blame the current management team and workforce for this error, it would have been prior to the tenure of many employees, though it does not reflect well on a company which is attempting to regain credibility.