KPMG hit by another fine for audits at Rolls-Royce
Just weeks after its £14m Carillion penalty . . .
KPMG has been hit with a multi-million pound fine by regulators for failing to address evidence of bribery while working the accounts of Rolls-Royce.
The Financial Reporting Council (FRC), the UK’s accounting watchdog, fined the auditing giant £3.4m after it accepted several failures in its review of the engineering group’s accounts for its 2010 financial year.
KPMG received a ‘severe reprimand’ by the regulator while Anthony Sykes, the firm’s partner who led the audit, was hit with a £112,500 penalty ahead of his retirement in September.
Both fines were reduced from previous totals of £4.5m and £150,000 respectively after KPMG and Sykes agreed to cooperate with the probe.
The firm will also need to commission an independent review into its policies and procedures and pay the costs of the FRC’s investigation.
It is yet another embarrassment for KPMG and is the fourth fine for the accountant this year. Two weeks ago it was fined £14m, one of the largest fines in the UK sector’s history, for forging documents and misleading regulators in the run-up to the collapse of contractor Carillion, which became Britain’s biggest corporate failure in decades when it went bust in 2018.
Last year KPMG was fined £13m for helping a private equity firm dump a £100m pension deficit as it bought Silentnight.
The big four accountancy group aided HIG Capital buy the mattress maker in 2011 without having to shoulder any obligations to its retirement scheme, putting workers’ savings at risk.
The latest fine relates to longrunning investigations into claims Rolls-Royce had paid bribes to secure export contracts in several countries.
Rolls-Royce agreed to pay £671m in 2017 as part of a settlement to avoid prosecution by anti-corruption authorities in the UK, the US and Brazil.
The FRC said ‘allegations of bribery and malpractice’ by large multi-national companies in the defence sector gained ‘particular prominence’ in the year leading up to 2010 and KPMG had been ‘well aware’ of the issues after previously auditing another defence firm. The regulator said it had uncovered ‘serious failures’ by KPMG relating to two payments, £3.3m and £1.9m, made by Rolls-Royce to agents in India, which had given rise to the corruption and bribery allegations.
KPMG had been aware of the payments in July 2010 but had failed to mention them in its audit for the year, the FRC said.
It added Sykes had instructed a manager to remove a paragraph referring to the payments from a draft version of the report.
The FRC said the findings ‘amounted to serious failures to exercise professional scepticism’ by KPMG. But it said this did not mean Rolls-Royce’s accounts for the year had been misstated. ‘It is essential that auditors are alive to the risks of companies’ noncompliance with laws and regulations, and conduct work in this area with care and sufficient professional scepticism,’ said Claudia Mortimore, deputy executive counsel to the FRC.