Conservative MP Michael Fallon condemned the authority's use of E&Y for both audit and consultancy at a Treasury Select Committee hearing, where in 1998 and 1999 the firm accrued fees of 19 times and more than five times the value of its audit work.Fallon said: 'Is the firm likely to produce a hostile or particularly searching audit report when they depend on the FSA for five times the amount of the fee in consulting work?'He added that when Davies was at the Audit Commission such a practice would have been 'wrong in principle'.Davies replied that although he had some sympathy for Fallon's views, certain circumstances dictated that the auditor could be allowed to do the work, stressing that in the case of the FSA, the consultancy contracts were put for competitive tender.'Ernst & Young was involved in the process of establishing the FSA. We needed new financial controls systems and for some parts of that it was more cost effective to use the existing auditors,' he said.But Fallon insisted that the arrangements were 'verging on the improper' when the firm was allowed to charge £18,000 for its audit work in 1998 but £343,000 was subsequently paid to the FSA's auditors and their associates in connection with non-audit work. Similarly the firm charged £70,000 in 1999 and £380,000 for non-audit work.
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