One of Britain’s most senior accountants, four of his boardroom colleagues at Carillion and the audit firm KPMG will be the subject of the Financial Reporting Council’s largest ever investigation.
The watchdog is sending a team of forensic accountants and lawyers into the wreckage of Carillion to discover whether its auditors and the accountants on its board were culpable in the biggest construction company collapse in British corporate history.
Questions will be asked of KPMG’s closeness to Carillion, as it had been auditing the company for the past 19 years and because two of the past three finance directors were KPMG alumni.
The Financial Reporting Council is already investigating KPMG’s audits of Rolls-Royce during its years of bribery and corruption, and of the scandal-hit Co-operative Bank.
Two weeks after the government called official receivers into Carillion, the accountancy profession’s watchdog said that it would open an investigation into the last three years of the company’s accounts back to 2014, in which KPMG gave the directors’ financial reports a clean bill of health. The investigation will include the preparatory work KPMG will have done on the 2017 accounts, which had been due to be reported in March.
Carillion went bust owing more than £1 billion to its suppliers and its banks, putting the future of 20,000 directly employed workers in doubt, plus tens of thousands more in its supply chain. Its failure has raised questions over scores of its public sector contracts in hospitals, schools, prisons and for the Ministry of Defence. Thousands of Carillion pensioners will be out of pocket after the retirement schemes, £1 billion in deficit, were put into the Pension Protection Fund lifeboat.
The investigation into KPMG’s auditing will centre on Peter Meehan, the firm’s lead partner on the account. Mr Meehan, who became a partner in KPMG’s Birmingham office 20 years ago, has been the lead partner on Carillion since 2014, the first year of accounts under investigation by the Financial Reporting Council. The inquiry will extend to the professional accountants on Carillion’s board. They include Andrew Dougal, a part-time non-executive director who was the chairman of Carillion’s audit committee. He is a member of the council of the Institute of Chartered Accountants of Scotland and previously was chief executive of Hanson, the former FTSE 100 company.
Last night it emerged that ISS, a leading shareholder advisory group, is recommending that investors block the reappointment of Mr Dougal to the board of Victrex, the listed plastics group.
The investigations will take in Keith Cochrane, a leading Scottish businessman and chartered accountant who is former chief executive of Weir Group and Stagecoach. He was Carillion’s senior independent non-executive director when the company first announced its £1 billion lurch into the red last summer. He became interim chief executive on a salary of £750,000 in a doomed attempt to save the company.
The watchdog will also look into the roles of the three finance directors that Carillion had in its last 13 months.
Richard Adam retired in December 2016 after eight years as finance director. His subsequent career as a part-time non-executive has been blighted and led to his resignation from various boards, including First Group and Countrywide estate agents.
Mr Adam who had started his career with KPMG, was succeeded at Carillion by his protégé Zafar Khan. When Mr Adam left his previous job as finance director of Associated British Ports, Mr Khan took the post there before following Mr Adam to Carillion. Mr Khan is an old boy of EY, the accounting firm he brought in last summer to attempt a turnaround of Carillion. Mr Khan left the company last September.
He was succeeded by Emma Mercer, who previously had been the finance director of Carillion’s UK construction business, whose blowouts building the Midland Metropolitan and Royal Liverpool hospitals contributed to the group’s demise. Ms Mercer also trained and qualified as an accountant with KPMG.
A spokesman for KPMG said that the firm believed that Carillion had been audited “appropriately and responsibly”.