January 29, 2018
Watchdog opens inquiry into accountancy firm’s role in collapse of construction giant
The accountancy firm KPMG is to be investigated by the UK’s Financial Reporting Council over its role in the collapse of constrution firm Carillion.
The business secretary, Greg Clark, welcomed the investigation, which the accounting watchdog said followed inquiries made since Carillion’s shock profit warning in July. The FRC said it would conduct the investigation, which will cover 2014 to 2016 and additional audit work carried out during 2017, “as quickly and thoroughly as possible”.
Carillion, which was involved in the HS2 rail link and the revamp of Battersea Power station, as well as providing services such as cleaning prisons, went into compulsory liquidation two weeks ago with debts of £1.3bn, a pension deficit of nearly £1bn and a host of unfinished public contracts.
John Laing Infrastructure Fund, one of Europe’s biggest investors in public infrastructure projects, said on Monday it was working to find new facilities management companies for nine public-private partnership (PPP) contracts – four schools, four relating to emergency services and one road project. This will cost John Laing £3m.
The FRC investigation will consider whether KPMG breached any rules, in particular the ethical and technical standards for auditors. Several areas of KPMG’s work will be examined including estimates and recognition of revenue on significant contracts and accounting for pensions.
KPMG said it would cooperate fully with the FRC’s investigation and it believed it had conducted its role as Carillion’s auditor “appropriately and responsibly”.
The FRC is working closely with the official receiver, the Financial Conduct Authority, the Insolvency Service and the Pensions Regulator. Carillion is under investigation by the FCA, which is scrutinising its announcements between 7 December 2016 and 10 July 2017.
The shadow pensions minister, Jack Dromey, said the system of oversight at Carillion had clearly failed. He added that 28,000 workers were now paying the price with their jobs and pensions.
“The responsibility falls upon the government, the regulators, the board, the trustees and the asset managers,” he told BBC Radio 4’s Today programme.
“It was a bonanza for the board and for the shareholders and that cannot be right. There needs to be fundamental reform to pension oversight, but in the here and now the trustees need to be called to account,” Dromey said.
The GMB union was equally scathing about the “broken system” that allowed the corporate failure to happen and “must change”.
Its national secretary, Rehana Azam, said: “The more we see, the more it appears that the workers are paying the price for the failures of corporate bosses and government ministers.”
News of the FRC investigation came as Frank Field, the chair of the Commons work and pensions committee, accused Carillion of trying to “wriggle out of its obligations to its pensioners for the last 10 years”. Instead of tackling its growing pension deficit, he said, the company paid out hundreds of millions of pounds in dividends to shareholders and “handsome” pay packets to bosses.
Field added that the Pensions Regulator’s investigation was “much too late for the pensioners, who will inevitably now receive reduced benefits through the Pension Protection Fund, and too late for the PPF levy payers, who will pick up the tab. The Pensions Regulator has been aware of problems in Carillion since at least 2008, but there is little evidence of any hard action.”
Carilllion has 13 UK defined benefit pension schemes with 27,000 members.
Robert Branagh, president of the Pensions Management Institute, said: “Too many Carillion workers heading for the PPF would originally have had public sector arrangements working for the NHS, Prison Service and other government departments before transferring over to the Carillion scheme when their contracts passed over.”
The work and pensions and business committees have started a joint inquiry into the collapse of Carillion. On Tuesday, MPs will quiz Robin Ellison, chair of trustees of Carillion’s defined benefit pension scheme, as well as the heads of the FRC and the Insolvency Service.