KPMG has been fined £14.4m for deliberately misleading the accountancy regulator during inspections of its audits of subcontractor Carillion and another UK company, Regenersis.
The fine, the largest ever against KPMG in the UK, was imposed by an industry tribunal which found the Big Four firm provided false and misleading documents and information to the Financial Reporting Council.
Four former KPMG auditors, including Carillion audit partner Peter Meehan, were fined and banned from the profession. A fifth more junior auditor was severely reprimanded but escaped a fine despite the FRC’s request that he be ordered to pay £50,000.
The court ordered KPMG to appoint an independent reviewer to assess the effectiveness of its policies on how it interacts with FRC inspectors. KPMG also agreed to pay costs of £3.95m, bringing its total bill to almost £18.4m.
The sanctions follow a five-week tribunal in January and February, which found that KPMG staff misled the FRC during routine audit inspections of Carillion’s accounts for 2016 and the 2014 accounts of Regenersis, a company IT company listed in London and later renamed Blancco. Technological Group.
Carillion collapsed in 2018 after receiving clean audit opinions, fueling calls for reform of the UK audit sector and boardroom regulation. Legislation to implement the changes has been delayed until at least 2023.
KPMG’s fine was reduced by £20m to reflect its co-operation with the FRC and its admissions of wrongdoing. The £14.4m fine (the latest in a series of fines against KPMG) is dwarfed only by the £15m fine against Deloitte in 2020 over its audit failings at the former group of FTSE 100 Autonomy software.
The fines relate to KPMG’s interactions with the regulator during inspections of its work.
The quality of KPMG’s audit of Carillion is the subject of a separate investigation, which is still ongoing.
Former KPMG partner Meehan was fined £250,000 and banned from ICAEW membership for 10 years.
Senior audit executives Alistair Wright and Adam Bennett, who had received a tip for promotion to partner at KPMG, were fined £45,000 and £40,000 respectively and given eight years each.
His colleague Richard Kitchen was fined £30,000 and banned for seven years. Another auditor, Stuart Smith, was fined £150,000 and banned for three years under a deal with the FRC before the tribunal began.
The fines will be paid to the Institute of Chartered Accountants in England and Wales, of which KPMG is a member.
Jon Holt, UK chief executive of KPMG, said he accepted the court’s findings.
“The behavior underlying this case was wrong and should never be [have] happened,” he said.
“We reported this to our regulator as soon as we discovered it and have co-operated fully with their investigation. Since then, we have worked hard and in full transparency with our regulator to ensure that people’s behavior affected does not reflect the wider culture of the company”.
Carillion’s liquidators have also launched a £1.3bn legal claim against KPMG, which has denied wrongdoing and pledged to defend the case.
Separate legal action is also underway which seeks to disqualify some of Carillion’s former directors from running UK companies.
KPMG UK partners received an average of £688,000 last year, their biggest pay day since 2014.