KPMG has been given a record fine for failings in its auditing of Carillion – the construction company that collapsed in 2018 with the loss of thousands of jobs.
The Financial Reporting Council said the firm has been sanctioned a total of £30m – but this has been reduced by 30% after co-operation and admissions were taken into account.
KPMG will also be required to declare that past audit reports did not satisfy requirements – and take action to prevent such breaches from happening again in the future.
Carillion’s sudden collapse sent shockwaves through the economy – “causing significant cost to UK taxpayers, investors pension holders and employees”, the FRC concluded.
Thousands of jobs were lost – with schools, hospitals and prisons plunged into crisis as a result.
Jon Holt – chief executive and senior partner of KPMG in the UK – described the FRC’s findings as “damning”, and apologised for the firm’s failings.
He said: “It is clear to me that our audit work on Carillion was very bad, over an extended period. In many areas, some of our former partners and employees simply didn’t do their job properly. Junior colleagues were badly let down by those who should have set them a clear example, and I am upset and angry that this happened at our firm.
“Since this audit work was undertaken, we have done an enormous amount to improve controls and oversight across our firm, to ensure that these failings could not take place today. But ultimately it still falls to each of us, individually, to hold ourselves and each other to the highest professional standards every day.”
Mr Holt went on to say that he “simply cannot defend the work that we did on Carillion” – and said he was “absolutely committed” to ensuring nothing like this can happen again.
Richard Moriarty, the CEO of the FRC, said: “The collapse of Carillion had a significant and painful impact on employees, pensioners, investors, critical infrastructure projects, local communities and taxpayers.
Our investigation concludes this was a textbook case study in failure. Important safeguards that should have been present were seriously lacking.”
He explained that the case “demonstrates the critical need for directors to uphold high standards of reporting and governance, supported by high quality audit based on effective challenge of management and professional scepticism”.
Last month, Sky’s City editor Mark Kleinman had reported that a penalty was close to being finalised.
Carillion’s insolvency came after months of intensive efforts to salvage a business that played a major role in the UK’s public sector infrastructure programme – sparking a firestorm of criticism over its directors’ conduct and that of its advisers.
It also led to calls for wide-ranging reforms of the audit profession – many of which have yet to be implemented by the government.
KPMG has already been hit with a huge fine over its role in the Carillion scandal.
In July 2022, the firm had a £14.4m sanction imposed for misleading the Financial Reporting Council during spot-checks on its audit of the construction group and Regenersis, an outsourcing firm.
Like its “big four rivals” – Deloitte, EY and PricewaterhouseCoopers – KPMG has also been hit with a multitude of other fines for audit failings in the past five years.