Regulator hits KPMG with £14.4m fine for misleading regulators over Carillion audit

Regulator hits KPMG with £14.4m fine for misleading regulators over Carillion audit

KPMG's Glasgow office

Big Four firm KPMG is set to be fined £14.4 million after a Financial Reporting Council (FRC) tribunal found that its auditors deliberately misled regulators during routine inspections of its audit of collapsed government contractor Carillion.

The £14.4m fine for KPMG would be the second-largest ever handed to a UK accountancy firm, overshadowed only by the £15m penalty imposed on Deloitte in 2020 for its auditing failures of Autonomy.

Yesterday, the tribunal heard that KPMG and the Financial Reporting Council had agreed the firm should be fined £20m for its misconduct, but that this should be reduced to £14.4mn to reflect mitigating factors and KPMG’s admissions of wrongdoing. KPMG has also agreed to pay £4.3m in costs.

Five individual defendants, Peter Meehan, who led the audit of collapsed government contractor Carillion, senior managers Alistair Wright, Richard Kitchen and Adam Bennett and junior auditor Pratik Paw, were all found guilty of misconduct by the FRC.

Another former KPMG auditor Stuart Smith accepted a £150,000 fine and a three-year ban from the profession as part of a settlement with the FRC in January, The Financial Times reports.

The tribunal’s findings followed a five-week hearing in January and February focusing on the conduct of KPMG staff during routine FRC inspections of the firm’s audits of the 2014 accounts of outsourcer Regenersis and the 2016 accounts of Carillion.

It ruled that during the inspections KPMG auditors created documents, including meeting minutes, spreadsheets and assessments of goodwill, but passed them off as having been produced before the accounts were signed off.

In January this year, Scottish Financial News reported that KPMG admitted to misleading the regulator. In a statement released on the first day of the five-week tribunal, chief executive Jon Holt said the misconduct is ” disturbing and upsetting” for himself and his colleagues who are “committed to serving the public interest with honesty and integrity.”

Summarising the tribunal’s findings, Mark Ellison QC for the FRC said Meehan, Wright, Kitchen and Bennett had “acted deliberately and dishonestly in the creation of false documents and the making of false representations” to the FRC. The tribunal found that Mr Paw acted without integrity but not dishonestly.

The FRC called for Meehan to be fined £400,000 and banned from the profession for 15 years. Meehan’s lawyers said he should be fined £250,000 and banned for 10 years.

The regulator said Wright, Kitchen and Bennett should each be fined £100,000 and banned for 12 years, with a 10% discount for Mr Wright because he had admitted to some of the allegations against him. The FRC said that Mr Paw, who was not yet a qualified accountant at the time of his wrongdoing, should be fined £50,000 and banned for four years.

The tribunal will decide on the final penalties after hearing from lawyers on both sides.

Jon Holt, chief executive of KPMG UK, commented: “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.”

He concluded: “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.”

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