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Five years later…and still no report on KPMG’s role in the Carillion crash: Investigations by audit watchdogs have gone unpublished
Investigations by auditing watchdogs into the dramatic demise of Carillion remain unpublished five years after one of the biggest financial disasters in recent years.
This month marks the fifth anniversary of the company’s £7bn debt collapse. Before his demise, Carillion was one of the government’s largest contractors, working on vital projects, including new hospitals and schools.
Auditor KMPG, who failed to raise red flags on the company’s accounts, was heavily criticized for his role in the scandal.
Disaster: Before its demise, Carillion was one of the government’s largest contractors
In 2018, the financial regulator, the Financial Reporting Council (FRC), launched two separate investigations into the audit group’s work on Carillion’s financial statements from 2014 to 2016.
It later extended the period covered by the study to 2013. But the studies are now approaching their fifth year — with no publication date in sight.
Baron Sikka, a professor of accounting at the University of Sheffield, called on the FRC to complete its investigation and publish the findings. He said: ‘There has been no urgency shown by the regulator, which means that many of the bad practices identified by the Carillion failure are still not being suppressed.
“The FRC is failing to investigate quickly. By not showing results, it has in fact abdicated its responsibility.’
KPMG – one of the ‘big four’ accounting firms – signed Carillion’s accounts four months before it issued a profit warning and nine months before it went bankrupt.
Shadow Chancellor Rachel Reeves, who co-chaired Parliament’s Business Committee when it published a damning report on Carillion’s bankruptcy, said the collapse showed “how a government addicted to outsourcing stood idly by as the financial disaster unfolded.” adding: ‘Ministers repeatedly ignored warnings about the state of the company and did not stand up for taxpayers.’
Sir Jon Thompson, head of the FRC, defended the lengthy time taken by the investigations, saying it was important to ensure they are ‘thorough and accurate to provide the transparency and accountability the public deserves’.
He said: “These investigations are complex and require a thorough review of a huge amount of financial and other data, as well as coordination with other agencies conducting parallel investigations.”
Other regulators, including the Financial Conduct Authority (FCA), launched an investigation after its failure. A separate investigation by the FCA concluded that it would have fined Carillion £38 million had it not been in liquidation.
The trustee, acting on behalf of Carillion’s creditors, is still involved in a legal battle with the accountant. Government officials overseeing the liquidation of Carillion are suing KPMG for £1.3bn, claiming KPMG missed ‘red flags’ when reviewing the accounts. It was one of a series of audit scandals that shattered KPMG’s reputation. It also has failed audits at advertising group M&C Saatchi and retailer Ted Baker.
But it was Carillion who rocked the audit industry by highlighting questionable practices and sparked a battle in the City and Westminster to reform the industry. This included plans to replace the FRC with a new body, the Audit Reporting and Governance Authority.
But experts have questioned whether proposed policy changes will be watered down.
A KPMG spokesperson said the company was cooperating fully with the FRC’s investigations.