KPMG apologises over Carillion failings
KPMG has been issued with a record £21m fine over its auditing failures related to the now-collapsed construction giant Carillion.
The Financial Reporting Council (FRC) imposed a total £30m penalty but this was reduced by 30% to around £21m to reflect KPMG’s co-operation with the five-and-a-half year investigation.
The FRC said on Thursday that the fine was due to the ‘number, range and seriousness’ of issues in KPMG's work.
The Big Four firm was also ordered to pay £5.3mn in costs.
Elizabeth Barrett, executive counsel at FRC, said: “The number, range, and seriousness of the deficiencies in the audits of Carillion during the period leading up to its failure was exceptional and undermined that credibility and the public trust in audit. This is reflected in the financial sanction imposed on KPMG LLP, the highest ever imposed by the FRC.”
Failures by Carillion, which collapsed in 2018 with debts in excess of £1.5bn, cost thousands of jobs and 450 building projects.
KPMG checked the company's accounts from 2014 to 2017 and failed to spot its problems.
Barrett added: “Many of the breaches involve failing to adhere to the most basic and fundamental audit concepts such as to act with professional scepticism and to obtain sufficient appropriate audit evidence. The breaches in relation to the 2016 audit even include failing to ensure that the audit process itself was properly managed and that the audit file was a reliable record. These requirements lie at the heart of proper auditing. The seriousness of the failings in the 2016 audit is compounded by the breaches of the Ethical Standards relating to the fundamental principles of objectivity, independence, and integrity.”
The FRC singled out Peter Meehan, a former KPMG partner who no longer works for the firm, saying he and his team had occasionally signed off audit reports before completing all of the work involved.
He has been fined £500,000, reduced to £350,000 to reflect his co-operation with investigators.
Another partner, Darren Turner, has been fined £100,000 which was reduced to £70,000 for failures in a 2013 audit.
KPMG apologises
Jon Holt, chief executive and senior partner of KPMG in the UK, said: “These findings are damning. We have cooperated fully with the investigation, and we accept its conclusions and the sanctions that have been imposed without reservation. I am very sorry that these failings happened in our firm.
“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.”
He added that since this audit work was undertaken, it has done an enormous amount to improve controls and oversight across the firm to ensure that these failings do not happen again.
He added: “But ultimately it still falls to each of us, individually, to hold ourselves and each other to the highest professional standards every day.
“As an auditor, I simply cannot defend the work that we did on Carillion. As the chief executive of KPMG, I am determined that we face up to this failure, and I am absolutely committed to continuing to work with my colleagues across the business to ensure that nothing like this can happen again.”
