By Carole Dennett
Back in April, the IW Observer raised serious questions about Red Funnel’s financial health and the integrity of its audit process. At the heart of our investigation was a simple but pressing question: “Who audits the auditors?”
That query has finally been answered with the release of the Financial Reporting Council’s (FRC) annual report on Tuesday – and the findings are concerning.
Of the six ‘Tier 1’ audit firms assessed, five received a clean bill of health. The one that failed? BDO – the firm that audits Red Funnel. The FRC report highlighted “recurring underlying findings” in areas including quality management and called on BDO to “urgently and robustly reassess how to improve its audit quality.”
The report adds weight to concerns raised in our April article, which examined discrepancies in Red Funnel’s accounts. The directors’ report claimed the risk of failing services were mitigated by duplicate systems and equipment, yet Islanders know all too well the reality of frequent breakdowns and cancellations. Auditor James Newman of BDO refused to comment on how these claims sat with the operational failures. Nor would he respond to questions about the company’s massive increase in audit fees, which rose from £86,000 in 2022 to £227,000 in 2023 – or the controversial “one-day diddle” tactic used to delay filing accounts by six months. Yet the Hythe Ferry accounts due on March 27 have still not been filed.
BDO’s head of audit, Dominic Stammers, also declined to comment this week, again citing “duties of confidentiality.” The IW Observer has raised our concerns with the FRC. After all, BDO audited Thurrock and Woking councils, both of which collapsed afterwards.
New suitor – same silence
While Red Funnel’s financial credibility continues to unravel, its ownership saga takes another twist. After both Arcus Infrastructure Partners and Real Asset Investment Management walked away from potential deals, a new suitor has emerged: Northleaf Capital Partners (NCP), a Canadian private equity firm.
Curiously, NCP’s Toronto offices are just 300 metres down the road in King Street West from those of Red Funnel’s current co-owners, the Investment Management Corporation of Ontario (IMCO). If the deal goes through, they’ll be able to walk all the files down the road – convenient for them, but not reassuring for us.
Northleaf reportedly considered acquiring Red Funnel when it first went on the market, but walked away. So what’s changed? Perhaps the company’s deteriorating condition now presents a bargain basement opportunity. After all, Northleaf’s website talks of “opportunistic” investments, buying “at a discount to intrinsic value” and “strong returns.” Islanders could be forgiven for wondering whether that aligns with the needs of the Island’s lifeline ferry service.
We reached out to Roderick Gadsby, head of Northleaf’s London office, to ask whether his private equity firm would be a more responsible and community-minded owner than the current private equity firm. He didn’t answer. Perhaps he was too busy reading FRC’s report, which can be used by governments as a benchmark for “delivering transparency and accountability.” That will give him food for thought!
Building a successful career
Meanwhile, Red Funnel’s CEO Fran Collins appears to be steering clear of the storm. Amid more cancellations, Ms Collins was spotted not in Bugle Street, but in London—again. On July 9, Maritime UK posted about her appearance at a career guidance event, where she offered “practical advice on building a successful career in maritime.”
Islanders might have hoped she’d be lobbying for support for lifeline ferry services, discussing funding models, or contingency planning. Instead, she was discussing “pivotal moments” in her career. Islanders were simply left with more cancelled sailings.
With clapped-out vessels, unreliable services and massive debt, Red Funnel’s future looks increasingly precarious – while the board has watched potential investors walk away.
Whether Northleaf steps in or not, Islanders deserve transparency, accountability, and a ferry service that prioritises public need over private profit. When the Prime Minister met West Wight MP Richard Quigley recently, he said he was aware he needs to find a solution to the ferry problem. It seems the message may finally be getting through.
As the FRC’s audit report points out, quality and integrity in financial oversight are not optional – they are essential. And while Red Funnel’s saga continues, the silence on the future of our lifeline service speaks volumes.
