Accountants in fees conflict

BRITAIN'S biggest companies paid their accountants more than £675m in consultancy fees last year - three times the amount they spent on having their books audited.

The huge gravy train is disclosed following the Enron scandal which highlighted the alarming lack of independence among many auditors.

And the shock figures will increase fears that accountants' conflicts of interest mean many of them are failing to safeguard the interests of shareholders and pension holders - the very people they should be protecting.

There have already been warnings from major shareholding groups - including the Association of British Insurers and the National Association of Pension Funds, which speak for about two-thirds of the stock market - that they are ready to vote against the reappointment of auditors if they earn too much in consultancy fees.

Figures from the buyingTeam consultancy show that, far from reducing the sums paid to accountants for non-audit work, Britain's 100 largest firms are paying more than ever.

In 1998, auditors earned 1.6 times as much from consultancy as they did from audit fees from the FTSE 100 companies. Last year, that gap widened to 3.13 times. BSkyB was the biggest spender, paying 23 times more on consultancy to its auditor, the stricken Arthur Andersen.

The biggest single non-audit fee was £45m paid by Unilever, though the consumer goods giant says it will review future payments.

And Financial Mail can reveal that BT is facing a shareholder revolt over massive consultancy fees paid by the telecoms group to its auditors, PricewaterhouseCoopers. BT's annual report shows that it spent ten times more on consultancy from PWC than it did on auditing. PWC was paid £2.7m for signing off BT's accounts in the year to March, but collected £22.7m on non-audit items. These included £14.2m for fees relating to BT's record-breaking £5.6bn rights issue last year and demerging its mobile phone division, mmO2. PWC was also paid £2.6m for systems advice and £2.2m for 'other' consultancy services.

The National Association of Pension Funds said it was alerting institutions about companies that pay accountants more for non-audit work than for auditing the accounts.

With PWC up for reappointment at BT's annual meeting next month, the company will be forced to justify the spending to its biggest shareholders. One leading institution said: 'Chairman Sir Christopher Bland pleased many shareholders when he said BT should no longer be a machine for generating investment bankers' fee income - perhaps he should have mentioned accountants, too.'

BT said it had tried to make its disclosure 'totally transparent'. A spokesman said: 'It should also be noted that the largest figures came from work that is clearly nonrecurring. We aren't going to be demerging mmO2 again.'

BT is causing particular concern because its non-audit spending with PWC has rocketed in the past three years. In 1999, BT paid the accountants £2.5m for auditing out of a total spend of £10.7m. By 2001 the audit fee was £3.7m and the non-audit fees were £16.2m.

Matthew Eatough, managing director of buyingTeam, said: 'There is now clearly a market failure in the provision of accounting services. With 93% of companies in the FTSE All-Share index audited by what is now the Big Four, executives and shareholders simply do not have sufficient choice.

'The balance of power has shifted from the purchasers - ultimately the shareholders - to the providers, leaving the shareholders more exposed than ever.'

Only seven FTSE companies have changed their auditors over the past decade. According to data from buyingTeam, three of those appointed accountants where their chief executive or finance director had been a partner.

The Enron affair, where audit partners had moved from Andersen to join the company, highlighted the risks of such close connections.