KPMG will pay £18.4m and four of its senior staff have been banned from the accountancy profession for misleading regulators over the firm’s botched audits of collapsed outsourcing company Carillion.
An investigation into KPMG’s work found the four former staff members had “made, or connived in or were knowingly associated with making, certain false or misleading representations,” to the Financial Reporting Council.
They have been fined a combined £365,000 and been kicked out of the Institute of Chartered Accountants for between 7 and 10 years. A fifth member of staff was severely reprimanded.
The wrongdoing concerned “false and misleading information and documents” submitted on the audits of both Carillion, and Regenersis, a data company.
It is the latest in a string of fines handed out to UK-based accounting giants for failing to properly check companies’ books.
In 2018, Carillion became the biggest UK company to collapse in decades, with 3,000 staff losing their jobs. The company failed with debts of £7bn, leaving a trail of chaos for suppliers and the government which had to find new contractors for hundreds of construction projects.
The government continued to hand out contracts to Carillion even as concerns grew about its financial stability. Faith in the company’s business model was based, at least in part, on KPMG’s audits, which have since been found to be substandard and misleading.
“The seriousness of the misconduct that we have found proved scarcely needs explanation,” said a tribunal which heard the case.
“Effective audits are essential to the financial system. Management and investors should be able to rely on the audited financial reports of the company in question.
KPMG was fined £20m, reduced to £14.4m because it cooperated and admitted wrongdoing, and agreed to pay nearly £4m in costs.
“Misconduct that deliberately undermines the FRC’s ability to monitor and inspect the effectiveness of audits is extremely serious because it obstructs the FRC’s ability to protect the public interest,” said executive counsel Elizabeth Barrett.
“This case underlines the need for all professional accountants, regardless of seniority, to be aware of their individual responsibility to act honestly and with integrity in all areas of their work.”
KPMG chief executive Jon Holt said: “I accept the findings and sanctions of the tribunal in full.
“The behaviour underlying this case was wrong and should never happened.
“We reported it to our regulator as soon as we uncovered it and we have cooperated fully with their investigation.
“Since then, we have worked hard and with complete transparency to our regulator, to assure ourselves that the behaviour of the individuals concerned does not reflect the wider culture of the firm.”
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