KPMG will pay one of the largest fines in UK audit history, after former staff forged documents and misled the regulator over audits for companies including the collapsed outsourcer Carillion.
The Financial Reporting Council (FRC) – which regulates accountants – confirmed the £14.4m settlement at a London tribunal hearing on Thursday, and said KPMG would also face a “severe reprimand” over the “extremely serious” misconduct related to employees’ false representations to the watchdog.
The fine relates to misleading information provided to the FRC as part of audit quality reviews (AQR), meant to confirm the integrity of audits conducted for both Carillion and the software firm Regenesis between 2014 and 2016. The tribunal upheld allegations by the FRC that KPMG and former staff created false meeting minutesand retroactively edited spreadsheets, before sharing those documents with the FRC.
Mark Ellison QC, who was representing the FRC on the first day of the two-day tribunal hearing, said KPMG’s total fine for would have been worth £20m – the largest fine on record, ahead of the £15m fine issued to Deloitte in 2020 over its historic audits of the software company Autonomy – but the figure was reduced to £14.4m to reflect the accounting firm’s cooperation and willingness to admit guilt.
“The misconduct found in this case is extremely serious,” Ellison told the tribunal. “It cuts at the very heart of the protection of the public interest in the respondents’ regulator, the FRC. It was misconduct deliberately aimed at deceiving AQR inspectors appointed by the FRC.”
The settlement is the latest in a long-running saga related to the FRC’s investigation into the events surrounding Carillion’s failure in January 2018, which subsequently sparked wide-ranging criticism over the quality of audits across the UK.
The outsourcer collapsed with £7bn of debts in January 2018, resulting in 3,000 job losses and causing chaos across hundreds of its projects – including two big hospitals, schools, roads and even Liverpool FC’s stadium, Anfield.
The tribunal, which began in January, will consider over the coming weeks the penalties for individual KPMG staff, including one of its partners, Peter Meehan. The FRC recommended on Thursday that the 60-year-old be banned from the accounting and auditing sector for 15 years and face a fine of at least £400,000.
The regulator also believes that three other KPMG staff – Alistair Wright, Richard Kitchen, and Adam Bennett – should each be excluded from the sector for 12 years and face a £100,000 fine. Pratik Paw, who was a more junior member of the team at the time of the misconduct, could face a four-year exclusion and a £50,000 fine.
Stuart Smith, who was the partner in charge of the Regenersis audit, reached a confidential settlement with the FRC in January.
Commenting on the settlement with the FRC, KPMG’s chief executive, Jon Holt, said KPMG was “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.
He noted that KPMG self-reported the misconduct to the regulator and had cooperated fully with the tribunal and the FRC throughout its investigation.
“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.”
The FRC is separately investigating KPMG and former Carillion directors over the audit, and preparation of Carillion’s 2016 accounts.
- The Guardian
... (Of Climate Change) PART I - By Bashorun J.K. Randle
While Sir Ronald Leach was Senior Partner of KPMG’s predecessor firm Peat Marwick Mitchell (Chartered Accountants) he was an unrepentant advocate of the sacred duties of chartered accountants and the sanctity of our role as the “conscience of the nation” in exchange for modest rewards. When I joined the firm in London in 1970, chartered accountants were prohibited from advertising their services – with the exception of insertions in the “Yellow Pages” of the Telephone Directory. Sir Ronald was a champion of the common good.
Thirty-four years afterwards when I retired as Chairman and Chief Executive of KPMG Nigeria and Chairman of KPMG Africa at the age of sixty years without gratuity or pension, it was nevertheless with an amazing sense of gratitude and incredible humility. It was a huge privilege to operate in an environment in which meritocracy and the common good were not in lethal conflict.
“The real voyage of discovery consists not in seeking new landscapes but in having new eyes. We also have a vignette from George Orwell (1903 – 1950): “During times of universal deceit, telling the truth becomes a revolutionary act.” However, Ralph Waldo Emerson (1803 – 1882) insists that we must not despair. His exhortation is as follows (It is all about “lies” !!): “What lies behind us and what lies before us are tiny matters compared with what lies within us.”
At about the same time as Sir Ronald Leach (of Peat’s) was an ardent advocate of the common good. Sir Arthur Lewis of the London School of Economics delivered his seminal work on the “Dual Economy” – the paradigm that still shapes the way most social scientists think about the economic problems of “less-developed countries.” Its main conclusion is that many less-developed or underdeveloped economies/ecosystems have a dual structure and are divided into a modern sector, which corresponds to the more developed part of the economy, is associated with urban life, modern industry, and the use of advanced technologies. The traditional sector is associated with rural life, agriculture and “backward” institutions and technologies.
When Colin Sharman (later Sir Colin Sharman/The Lord Sharman) was Senior Partner/Chairman of KPMG (1997) he pressed firmly on the reset button and came up with a new focus – namely, Chartered Accountants (particularly KPMG) should endeavour to align their services directly with the expectations of their clients with a robust emphasis on adding value. His initial conclusion was that our clients appeared to be more concerned with the future (Risk Assessment/Risk Management within the context of safety of investments and safety of lives and property). He then postulated that KPMG clients would shift their focus from what had already happened – Profit and Loss Accounts and the Balance Sheet to sustainability. The majority of KPMG Partners appeared to be in support. Whatever opposition was brewing was somewhat subdued.
Colin as Chairman of KPMG International went a step further by persuading KPMG International Council (of which I was a member) to fund his project – a team to go round the world and anticipate/predict the future of the emerging global village. His logic appeared to be sound – if you know the future, you can deliver great value by alerting your clients to future challenges and opportunities. I must confess that my role in this laudable endeavour and exciting enterprise was on the fringes. I read the voluminous reports and whatever observations/comments I made were relegated to the footnotes.
To the best of my knowledge, the report did not predict any of the following “Game Changers”:
- Climate Change
- The rise of China to Challenge United States of America
- Covid-19 pandemic
- The emergence and dominance of Amazon in on-line shopping.
- The emergence of Internet; High Tech; Mobile Phones; Artificial Intelligence; Blockchain and Cryptocurrency (Bitcoin, Ethereum, ett.).
- The Supremacy of Data
- The Collapse of Enron and Arthur Andersen
- The emergence of Elon Musk, now the richest man in the world thanks to his electric cars (Tesla)
- The collapse of the Soviet Union
- The War in Ukraine
- Space travel tourism/private shuttle
- Arab Spring
- Oil Theft (mostly from Nigeria)
- Advance Fee Fraud (“419”) mostly from Nigeria
- The demise of fax machines.
Regardless, Colin Sharman deserves kudos for his vision and the vigour with which he pursued it for the common good without compromising the credo of the accountancy profession – chartered accountants are the avatars of public trust. There was no way Colin could have predicted the unification of Western Germany with Eastern Germany or the demise of Kodak which was the star stock on Fortune 500. Suddenly, fabric of society has been invaded by “LGTB” and social media. We must add ZOOM and virtual learning plus working from home (remotely) to the list.
By the time Michael Rake emerged as Chairman of KPMG in 2002 after serving as Colin’s deputy, the new mantra was “Eat what you Kill and Kill what you eat.” It was a huge cultural change.
- Bashorun J.K. Randle is a former, President of the Institute of the, Chartered Accountants of Nigeria (ICAN), and former Chairman of KPMG Nigeria, and Africa Region. He is currently the Chairman, J.K. Randle Professional Services
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