Big four financial services firm KPMG has been fined £14.4 million over its reports to regulators on its audit of collapsed construction contractor and outsourcing firm Carillion. The Financial Reporting Council (FRC) has also kicked out four of the firm's former staff from the Institute of Chartered Accountants in England and Wales for between seven and ten years.
Carillion, which was headquartered in Wolverhampton, was known for its work on major construction projects across the UK and other outsourcing services but a string of financial problems led to its collapse in January 2018.
The newly imposed fines relate to dealings between KPMG and the FRC during inspections of the accountancy firm's work and follow a five-week tribunal held at the turn of this year.
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The tribunal concluded that the FRC was misled by KPMG staff during routine inspections of the audit of Carillion's accounts for 2016 and those of London IT firm Regenersis for 2014.
The FRC's Audit Quality Review team said that the quartet of former KPMG staff had "made, or connived in or were knowingly associated with making, certain false or misleading representations".
"The seriousness of the misconduct that we have found proved scarcely needs explanation," said a tribunal which heard the case.
"Effective audits are essential to the financial system. Management and investors should be able to rely on the audited financial reports of the company in question.
"The purpose of audit quality reviews is to assess, and where appropriate suggest improvements to, the effectiveness of audits."
KPMG was fined £20 million, reduced to £14.4 million because it co-operated and admitted wrongdoing, and agreed to pay £3.95 million in costs.
The four former KPMG staff members were fined a combined £365,000 including Birmingham-based audit partner Peter Meehan who received a fine of £250,000 and was banned from the Institute of Chartered Accountants in England and Wales for ten years.
A fifth member of staff, who also no longer works for KPMG, was severely reprimanded but not fined.
"Misconduct that deliberately undermines the FRC's ability to monitor and inspect the effectiveness of audits is extremely serious because it obstructs the FRC's ability to protect the public interest," said executive counsel Elizabeth Barrett.
"This case underlines the need for all professional accountants, regardless of seniority, to be aware of their individual responsibility to act honestly and with integrity in all areas of their work."
KPMG chief executive Jon Holt said: "I accept the findings and sanctions of the tribunal in full. The behaviour underlying this case was wrong and should never have happened.
"We reported it to our regulator as soon as we uncovered it and we have co-operated fully with their investigation.
"Since then, we have worked hard and with complete transparency to our regulator, to assure ourselves that the behaviour of the individuals concerned does not reflect the wider culture of the firm."
The quality of the auditing of Carillion's finances and accounts by KPMG is the subject of a separate investigation which is still ongoing.
