A manufacturer contracted to provide thousands of ventilators for coronavirus patients received £79m from the UK government shortly after its auditor quit in a disagreement over the accounts of its holding company.
Ministers placed an order for 15,000 of the life-saving machines from Penlon, part of a consortium of businesses increasing production levels through the UK government’s “ventilator challenge”.
Some 3,000 ventilators have already been supplied to the NHS by the Oxfordshire-based company as manufacturing is scaled up with help from big names of British industry.
The Cabinet Office paid £79m to Penlon in four tranches, including £45.9m and £27.1m both made on April 2, according to newly published government spending data.
The government order was a significant deal for Penlon, which made a pre-tax loss of £4.2m on annual revenue of £9.2m in the year ending March 31 2019.
EY resigned as Penlon’s auditor in a letter dated April 1 after it refused to sign off on the accounts of its holding company, Intermed Limited, according to a document filed at Companies House last week.
The accountancy firm said in accounts published in January that it had failed to obtain “sufficient appropriate audit evidence” from the group’s management to support an £11.5m carrying valuation of a subsidiary that had been lossmaking since 2012. EY added that the “significance of the matter” meant it would not give an opinion on the financial statements prepared by Intermed’s directors.
The accounts also showed that Intermed avoided a warning about its ability to continue trading because of a commitment from its Indian parent company — BPL Medical Technologies — to provide £2m in financing. EY quit as auditor to both Intermed and Penlon in light of its decision not to give the holding company a clean audit opinion.
Penlon said a new auditor had been appointed and that EY had signed off the 2018/19 accounts of Penlon prior to its resignation. It added that EY was “in the process of signing off” the consolidated group accounts of BPL Medical Technology for the year 2019/20.
A government official said the ventilator order was placed with Penlon in late March, before EY stepped down as auditor. The purchase was subsequently confirmed by the Cabinet Office in mid-April following regulatory approval for the device, which is a modified version of an existing machine adapted for use in Covid-19 cases.
A Cabinet Office spokesperson said: “We have robust financial processes in place with all suppliers, including regular reviews of financial data. Invoices from suppliers are only paid after careful and thorough scrutiny of the costs.
“Penlon are continuing to deliver on the contract and help increase the UK’s ventilator supply, last week making over 1,000 devices.”
The government has faced scrutiny over the costs of private sector procurement during the crisis. Last month, figures from the National Audit Office revealed that the ventilator challenge project would cost taxpayers up to £450m despite several orders being cancelled.
The new spending data from the Cabinet Office also revealed around £23m was paid in April to Smiths Medical, which is in the same consortium as Penlon, for a separate batch of ventilators with other companies similarly involved in production. Cambridge Consultants, a technology consultancy, was paid £2.6m for design and development support on the ventilator challenge project.
Many aspects of production are being taken on by Penlon’s consortium partners including Airbus, Ford and McLaren, which have set up parallel factory lines to massively boost output, with Penlon testing and releasing devices.
A number of engineering companies launched projects to design and manufacture ventilators from scratch following a call to action by the prime minister. With the exception of Penlon’s adapted device, none of the new models has received regulatory approval. Among those canned were a prototype from Dyson, which insisted it would not accept public funds despite spending £20m.
Officials revised down original estimates for the number of ventilators required to cope with the peak of the pandemic from 30,000 to 18,000, attributing the reduction to changing medical understanding of the disease and the success of lockdown measures.