From the Big Four to the Big Three?: Call to Ban EY Bidding on Public Contracts for Three Years by Anti-Corruption Group
December 2, 2020
3 min read
What's going on here?
Based on frequent accusations of “professional misconduct”, campaign group Spotlight on Corruption has urged the government to introduce a three-year ban on EY bidding on public contracts.
What does this mean?
Ernst and Young (EY) is a member of the ‘Big Four’ Accounting Firms (alongside PwC, Deloitte and KPMG) – the most esteemed audit, tax and professional service companies internationally. Despite this label, EY’s reputation also has a more sinister side.
In the last year alone EY missed billions of euros in fraudulent activities in audits of its client Wirecard; the High Court ruled that EY has “repeatedly breached the code of ethics for professional accountants” with regard to a Dubai gold refiner client; and EY was fined £720,000 by the Spanish audit regulator for grave breaches of Spain’s auditing laws. To top things off, investigations are ongoing into EY’s audits of NMC Health and London Capital & Finance, which The Guardian suggest “both collapsed amid claims of fraud”.
This reputation has prompted campaign group Spotlight on Corruption (which investigates and exposes “cases of corruption where there are strong grounds for supposing that the UK’s anti-corruption laws have been broken”) to send a 17-page letter to the UK government stressing EY’s “grave professional misconduct” that “renders its integrity questionable”. The letter details EY’s alleged breaches of “company law, international accounting standards and industry-standard ethical frameworks”. The campaign group therefore calls for a three-year ban on EY bidding on public contracts, with EY procuring 223 such contracts since 2015 with a total worth of £219m according to consultancy firm Tussell.
Spotlight on Corruption states that given EY’s poor track record, UK Government awarded contracts to the firm pose an “unnecessary risk to the taxpayer”. The letter advises that the three-year ban would not only protect the government’s relationship but deter EY and similar firms from such breaches and misconduct.
What's the big picture effect?
The impact of Spotlight of Corruption’s letter on EY hinges on the Government’s response to the campaign group’s letter. Whilst EY disagrees with how it has been characterised by the group, this negative limelight does not bode well for the firm, which will have to put significant efforts and resources into reversing its reputational damage.
However, the damaged reputation of EY may hold an advantage for law firms. In recent years, the Big Four have been labelled as potential threats to the traditional law firm model after they were granted licences to launch an Alternative Business Structure (ABS) enabling them to provide legal services on top of their existing services (more information on ABS’s can be found here). Consequently, the Big 4 could package these services as offering ‘more’ (combined packages of services for clients) for ‘less’ (lower fees), creating a competitive edge over top law firms who feared losing clients as a result.
Nevertheless, in light of the scrutiny EY has faced as highlighted by Spotlight on Corruption, law firms may be able to even the score against the threat of ABSs. With a report in 2019 revealing that none of the Big Four surpassed the 90% target “of its audits being assessed as good quality” (read our report on that here), those law firms previously concerned by the ABS model can now emphasise the quality of their services as a means to attract or retain clients, compared to the Big Four’s ‘more for less’ approach.
The Big Four once used to be the Big Five before the collapse of Arthur Andersen in 2001 as a result of the Enron scandal. 20 years later, could the Big Four now become the Big Three? It remains to be seen whether or not EY can completely recover its reputational damage and retain its prestigious professional position.
Report written by Edie Essex Barrett
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