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Exposed again! UK Parliament slams KPMG for poor work – and for raiding Carillion coffers

EDINBURGH — KPMG has been named in one major financial scandal after the next over the past year – and is still in business. From allowing the Gupta family to ransack South African state-owned entities to being exposed for conflicts of interest in the London Grenfell Tower tragedy investigation, the KPMG ‘brand’ keeps popping up wherever there is corporate greed. No doubt KPMG is in a strong position because there is something in the relationships for the executives who sign off on KPMG’s juicy fees. Nevertheless, the wheels of justice are starting to turn, albeit slowly. There are signs of this around the globe: in the US, former KPMG employees have been appearing in court in connection with fraud after improperly receiving notice of inspections by US regulators; in South Africa, a growing number of corporates have cut loose from KPMG auditing services; and, not least of all, in the UK where the UK Parliament has the corrupt professional services firmly in its sights. – Jackie Cameron

By Tom Beardsworth and Áine Quinn

Bloomberg – Carillion Plc, a failed British company that built and managed government projects, deceived lenders and investors about its true debt levels, according to a U.K. Parliament report.

“They failed to publish the trustworthy information necessary for investors who relied on public statements,” parliamentary committees investigating Carillion said Wednesday. Lawmakers have questioned former Carillion executives, auditors and advisers about its January collapse, which left unpaid debts of about 1.6 billion pounds ($2.2 billion), including bank loans and defaulted bonds.

Cranes stand idle above the Midland Metropolitan Hospital construction site, operated by Carillion Plc, in Smethwick, U.K., on Thursday, Jan. 18, 2018. The Wolverhampton, central England-based company filed for liquidation on Monday after failing in last-ditch efforts to get support from lenders and the government. Photographer: James Beck/Bloomberg

The committees published a 107-page report on Wednesday accusing former Carillion executives of mismanagement. It also criticized accountants including KPMG and other advisers for poor oversight and “squeezing fee income out of what remained of the company” in its final months.

KPMG, Carillion’s external auditor, said it had “conducted our audit appropriately,” though a review of its work was reasonable.

Richard Adam and Zafar Khan, both former chief financial officers, didn’t respond to LinkedIn messages seeking comment. Richard Howson, the chief executive officer until 2017, said in a Feb. 6 interview with lawmakers that “a few challenging contracts, predominantly in the Oman and one in Qatar,” were responsible for Carillion’s failure.

The document is a joint report from the Work and Pensions Committee and the Business, Energy and Industrial Strategy Committee.

Transactions

Carillion, which had contracts covering projects including hospitals and high-speed rail, stopped operating after failing to shore-up its finances and get a government bailout. The company had grown rapidly over the last decade, buying rivals and bidding aggressively for state contracts being offered to the private sector.

“Carillion rejected opportunities to inject equity into the growing company and instead funded its spending spree through debt,” the report said. It said Carillion had used a government initiative to speed up payments to suppliers as a “credit card, but did not account for it as borrowing.”

“Whether or not all this was within the letter of accountancy law, it was intended to deceive lenders and investors,” it said. The company would have breached its debt covenants sooner had the liabilities been classified properly, it said. Lawmakers said Carillion executives had potentially breached British directors’ duties.

Separately, the U.K. Financial Reporting Council, a disciplinary body for accountants, said Wednesday that it expects to review tens of thousands of documents and emails relating to its investigation of Carillion and former financial officials. It is focusing on KPMG’s audit between 2014 and 2017, including contract accounting, pensions and goodwill. The FRC investigation was opened in March.

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