KPMG fined record £21m for Carillion audit failures

  • The Financial Reporting Council has reduced the fine against KPMG from £30m
  • Two former senior partners have also been handed severe reprimands and fines
  • Carillion went into compulsory liquidation in 2018 under a £7billion debt pile 

By HARRY WISE

Updated:

KPMG has been slapped with a record fine from the accounting regulator over its failure to adequately scrutinise the accounts of collapse outsourcer Carillion.

The Financial Reporting Council (FRC) has levelled a £21million sanction against the 'Big Four' consultancy, reduced from £30million due to its cooperation with the probe, and ordered it to pay over £5.3million in costs for the investigation.

Two former senior partners, Peter Meehan and Darren Turner, have also been handed severe reprimands and fined £350,000 and £70,000, respectively.

Pay rises: KPMG has been given a record fine from the accounting regulator over its failure to adequately scrutinise the accounts of collapse outsourcer Carillion

Pay rises: KPMG has been given a record fine from the accounting regulator over its failure to adequately scrutinise the accounts of collapse outsourcer Carillion

Once one of the largest UK construction companies, Carillion went into compulsory liquidation in 2018 under a £7billion debt pile following a period of flatlining revenue, 'aggressive accounting', and soaring borrowing costs from acquisitions.

Its failure generated considerable public controversy, with a parliamentary report castigating the 'recklessness, hubris and greed' of the firm's directors and urging an overhaul of Britain's corporate governance regime.

Because of KPMG's position as the group's auditor for almost two decades, its role leading up to the collapse has led to considerable scrutiny of its actions.

Elizabeth Barrett, an FRC executive committee member, said the 'number, range, and seriousness of the deficiencies' in the audits of Carillion was 'exceptional'.

She added that some of the failures involved not abiding by 'the most basic and fundamental audit concepts', including acting with 'professional scepticism' and gaining the appropriate evidence.

Particular criticism was reserved for KPMG and Meehan's work on the 2016 audit, which the FRC described as 'seriously deficient'.

It said they did not respond to indications that Carillion's core operations were lossmaking or that 'short-term and unsustainable measures' were underpinning cash flows.

The FRC added that some procedures were not finished until over six weeks after the audit report was signed, and records pertaining to the preparation and review of working papers were 'unreliable and, in some cases, misleading'.

KPMG UK's chief executive, Jon Holt, acknowledged the 'damning' findings, adding that he was 'very sorry that these failings happened in our firm'.

He continued: 'It is clear to me that our audit work on Carillion was very bad over an extended period. In many areas, some of our former partners and employees simply didn't do their job properly.

'Junior colleagues were badly let down by those who should have set them a clear example, and I am upset and angry that this happened at our firm.'

'Since this audit work was undertaken, we have done an enormous amount to improve controls and oversight across our firm to ensure that these failings could not take place today.

'But ultimately, it still falls to each of us, individually, to hold ourselves and each other to the highest professional standards every day.'

KPMG's fine comes on top of a £14.4million penalty it received last year for providing misleading documents to the FRC over its audits of Carillion and data erasure services provider, Regenersis.

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