I’m not a betting man, and that’s a good thing because, while not official yet, I would have bet my house on KPMG UK being fined more than £15 million for the whole Carillion audit fiasco.
The Financial Times reported this afternoon:
KPMG is set to be hit with its biggest-ever fine in the UK after a tribunal found that its auditors deliberately misled regulators during routine inspections of its work.
The largest fine KPMG has ever had to pay the Financial Reporting Council was £13 million last August for serious misconduct in its role in the sale of bed manufacturer Silentnight to a private equity fund.
Back to FT’s reporting:
The tribunal heard on Thursday that KPMG and the Financial Reporting Council had agreed the firm should be fined £20mn for its misconduct, but that this should be reduced to £14.4mn to reflect mitigating factors and KPMG’s admissions of wrongdoing. KPMG has also agreed to pay £4.3mn in costs.
Five individual defendants — Peter Meehan, who led the audit of collapsed government contractor Carillion; senior managers Alistair Wright, Richard Kitchen and Adam Bennett; and junior auditor Pratik Paw — were all found guilty of misconduct.
Another former KPMG auditor Stuart Smith accepted a £150,000 fine and a three-year ban from the profession as part of a settlement with the FRC in January.
The tribunal held a five-week hearing in January and February that focused not only on the major screw-ups and misconduct by KPMG and its auditors during the firm’s 2016 audit of Carillion, the construction and services company that collapsed nearly four years ago, but also failures in KPMG’s 2014 audit of Regenersis, an IT software company.
Smith, who was the audit engagement partner for Regenersis, was supposed to testify during the course of the hearing, but he got out of doing that by settling with the UK’s audit cops and accepting his punishment.
[The tribunal] ruled that during the inspections KPMG auditors created documents, including meeting minutes, spreadsheets and assessments of goodwill, but passed them off as having been produced before the accounts were signed off.
Summarising the tribunal’s findings, Mark Ellison QC for the FRC said Meehan, Wright, Kitchen and Bennett had “acted deliberately and dishonestly in the creation of false documents and the making of false representations” to the FRC. Paw acted without integrity but not dishonestly, the tribunal found.
The monetary amounts of the five ex-KPMG auditors’ punishments have yet to be decided. According to FT, the FRC called for Meehan to be fined £400,000 and be banned from the profession for 15 years; however, Meehan’s lawyers said he should be fined £250,000 and banned for 10 years. Wright, Kitchen, and Bennett are facing possible £100,000 fines and 12-year bans, with a 10% discount for Wright because he had admitted to some of the allegations against him. Paw, who was not yet a qualified accountant at the time, is facing a £50,000 fine and a four-year ban, FT reported.
If this all pans out, and it could be made official tomorrow, Deloitte will still hold the record for highest fine issued by the FRC at £15 million for its shoddy auditing of Autonomy, the UK-based software company that was acquired by Hewlett-Packard in 2011 and was involved in an epic accounting fraud.
We’ll update this article once the punishments are officially handed down to the Queen’s KPMG and its former auditors.