KPMG sued for £1.3bn over botched Carillion audits
KPMG is facing a £1.3bn lawsuit over its audit of Carillion.
Liquidators for the outsourcing giant, which went bust in 2018, claimed the big four accountancy giant failed to spot multiple ‘red flags’ that would have alerted them to misstatements in Carillion’s accounts.
The legal claim, brought by the Official Receiver, part of the Government’s Insolvency Service, also alleged that KPMG failed to maintain independence while conducting the audits, breaching professional and ethical obligations.
The claimants are seeking damages including around £210m in dividends paid by Carillion to investors between 2014 and 2017, as well as professional fees worth £31m.
They are also chasing over £1bn in losses incurred as the group continued to trade despite the misstated accounts.
KPMG said the claims were ‘without merit’ and that it would ‘robustly defend the case’.
The lawsuit came just days after it emerged KPMG’s bosses scooped their biggest payday since 2014 last year, despite a string of scandals. The 571 UK partners’ average pay jumped 20 pc to £688,000 last year.
But that was less than their counterparts at rival big four accounting firms, with Deloitte’s top brass getting an average of just over £1m.
KPMG was Carillion’s auditor for 19 years, earning a total of £29m in the process. It had debts of around £7bn but just £29m in cash when it went bust. It also owed around £2bn to sub-contractors. Its insolvency put thousands of jobs at risk and left creditors and shareholders out of pocket. At the time of its collapse, Carillion held around 450 construction and service contracts with the Government, and employed more than 43,000 people – 18,000 in Britain.
The Government was forced to step in to ensure that public services such as school meal provision and hospital maintenance continued following the company’s collapse.
The saga prompted calls for an overhaul of the auditing industry. Eight of Carillion’s former directors are fighting a legal action that is attempting to bar them from running UK firms.