Carillion auditor KPMG fined £14m for misleading regulators

KPMG is set to be fined £14.4m for forging documents and misleading regulators in the run-up to the collapse of contractor Carillion.

The Financial Reporting Council (FRC), the body that oversees accounting firms such as KPMG, has reached a settlement agreement at a tribunal over the case, which was undertaken after the UK’s second-biggest contractor fell into administration.

In January, KPMG’s UK boss admitted it had misled the financial watchdog over records of the number of construction service contracts the accountant had scrutinised as part of its auditor role at Carillion.

The fine for accounting misconduct had originally been expected to reach £20m, which would have made it a UK record fine for accounting discrepancies, but it was reduced to £14.4m after KPMG co-operated with authorities. The accountancy firm is also expected to pay £4.3m in costs.

Five employees at KPMG were found guilty of misconduct, including Peter Meehan, who was in charge of the audit of Carillion. The FRC has called for Meehan to face a fine of £400,000 and a 15-year ban for his role in forging documents.

A further KPMG employee, Stuart Smith, was given a £150,000 fine and a three-year ban in January.

In January KPMG’s UK chief executive Jon Holt admitted that the firm had misled regulators. In a statement following the settlement he said: “As I said back at the start of the tribunal, we are deeply sorry that such serious misconduct occurred in our firm. It was unjustifiable and wrong. It was a violation of our processes and a betrayal of our values.

“I am saddened that a small number of former employees acted in such an inappropriate way, and it is right that they – and KPMG – now face serious regulatory sanctions as a result.

“We became aware of the misconduct at the centre of this case as a result of our own internal investigations and immediately reported it to our regulator. We have co-operated fully throughout the FRC’s investigation, and with the Tribunal.

“As a firm, we are committed to serving the public interest with honesty and integrity. We have worked hard, and with complete transparency to our regulator, to assure ourselves that this matter does not represent the wider culture or practice of our firm.”

In a separate case, KPMG is being sued for £1.3bn by the Official Receiver over the work it undertook in the run-up to the collapse of the contractor. A formal claim was filed against KPMG in February.

The claim includes £230m to cover dividends that Carillion distributed in the years before its collapse. The Official Receiver has claimed these should not have been paid out. It is seeking a further £20m that KPMG received in advisory fees from the contractor. The largest element of the claim is believed to be trading losses that the receiver is trying to recover.

KPMG has made a provision of £144m in relation to cover potential future costs related to its work with Carillion.

KPMG has been contacted for comment.

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