Mitie Group faces second audit probe

Mitie Group, the UK outsourcing company, announced on Monday it was under investigation by the Financial Conduct Authority over the timing and content of its profit warning issued in September last year.

Mitie, which holds cleaning and maintenance contracts for many public-sector buildings, was informed by the FCA on Friday of the launch of an investigation – the second such inquiry into the firm's accounting practices.

In July, the Financial Reporting Council launched its own investigation into the financial statements of Mitie Group, particularly into the audit by Deloitte to determine any "breaches of relevant requirements in relation to the statutory audits for the years ended 31 March 2015 and 2016".

Shares in Mitie lost nearly half their value on their way to hitting a six-year low in the days following the profit warning on 19 September last year.

Brexit delays contracts

Mitie blamed the vote to leave the European Union, saying customers in the public and private sectors were delaying spending decisions due to economic uncertainty surrounding the vote. Two more warnings from Mitie followed.

Indeed, rival outsourcing groups Capita and Carillion have also issued profit warnings in recent months, citing a slowdown in the tender of contracts following the Brexit vote.

Serco, which had a string of warnings before the Brexit vote, has seen further profit erosion, also caused by delays in the awarding of new contracts.

FCA inquiry

Mitie announced to the regulatory reporting news service of the London Stock Exchange on Monday that it had been informed on Friday that the FCA "had commenced an investigation in connection with the timeliness of a profit warning, and the manner of preparation and content of the company's financial information, position and results for the period ending 31 March 2016".

Capital.com telephoned the FCA, but the regulator was unable to comment on an ongoing investigation. It was able, however, to confirm that it was carrying out an investigation in tandem with, but separate to the probe launched in July by the FRC.

Deloitte, the primary focus of the FRC's investigation, was ousted as external auditor last month by a shareholder vote at Mitie's annual general meeting.

In its annual report, it said "improvements were required in the approach to risk management and internal audit", after it found in a review of such practices that some of its accounting techniques were "less conservative" than those of its rivals.

Deloitte faces a fine if either regulator reveals any financial irregularities by the auditor. Mitie could be punished too, if the FCA finds shareholders suffered undue losses due to poor accounting standards.

Market reaction

The shares of Mitie have recovered much ground following the September profit warning – indeed, at £265, they are little more than £3 below the level they'd stood at just before the warning was issued.

On Tuesday, there was little reaction to the FCA news, with the shares slipping 0.3% on a FTSE 250 that was 0.9% lower.