KPMG says accounting regulator ‘was misled’ over Carillion audits

KPMG has apologised for misconduct and misleading the UK’s accounting regulator over audits including that of Carillion, the major government contractor that collapsed four years ago.

Jon Holt, the chief executive of KPMG UK, said it was “clear” that misconduct had occurred, in a statement published to mark the start of a disciplinary tribunal on Monday.

The Financial Reporting Council (FRC) has alleged that KPMG misled its investigators over routine inspections of the accountants’ audits of Carillion and Regenersis, a software company. The FRC has alleged that “relevant individuals acted with a lack of integrity in dishonestly or recklessly misleading the regulator”, according to tribunal documents.

The tribunal on Monday heard via a public video call allegations of “forgery” by KPMG’s auditors, including the “fabrication” of documents. The FRC’s counsel, Mark Ellison, told the tribunal that auditors manufactured a spreadsheet and minutes of meetings to appear as if they were created during the audits, when in fact they were created months later and presented to inspectors.

KPMG reported the alleged misconduct to the regulator, although it remains a party to the disciplinary tribunal alongside some current and former employees and partners. The other respondents have denied allegations of misconduct.

Holt said: “It is of course for the tribunal to reach a conclusion on the allegations as they relate to the individuals concerned. Nevertheless, it is clear to me that misconduct has occurred and that our regulator was misled.”

“The misconduct that this tribunal will hear about over the coming weeks is disturbing and upsetting for me and for my colleagues, who are committed to serving the public interest with honesty and integrity.

“This misconduct is a violation of our processes and clearly against our values. It is unacceptable, we do not tolerate or condone it in any way, and I am very sorry that it occurred in our firm.”

The tribunal is expected to hear evidence over the course of several weeks from the FRC and the respondents.

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The FRC also has two separate investigations concerning the collapse of Carillion, one of the highest-profile accounting scandals in recent years. The current tribunal will not investigate the circumstances of its collapse. Parliamentary committees have said KPMG was “complicit” in Carillion’s “questionable” accounting practices, including “complacently signing off its directors’ increasingly fantastical figures”.

Holt said KPMG had worked to ensure the practices covered by the disciplinary tribunal did not represent the wider culture or practice of the firm. He recently wrote to all colleagues to remind them of their duty to report concerns about how the firm and its employees were conducting themselves.

The six current and former KPMG employees facing the tribunal have been approached for comment via their lawyers.


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