KPMG has settled a £1.3 billion lawsuit brought by the liquidators of Carillion, who alleged the auditor was negligent and failed to notice significant warning signs in the outsourcing company’s financial statements prior to its disastrous collapse in 2018.
The lawsuit was filed by Britain’s official receiver, who is attempting to recover losses on behalf of Carillion’s creditors who are owed money by the failed company. The lawsuit related to audits of Carillion accounts between 2014 and 2016. The UK’s HMRC tax collection agency is one of those debtors.
Creditors argued that Carillion’s massive losses and £210 million in dividends were the result of the company relying on KPMG audits, which were paid £29 million over a 19-year period.
The size of the settlement was not confirmed by KPMG or the appointed receiver. A representative for the liquidator said, “The parties have agreed that the terms of that settlement will remain confidential.
“I am pleased that we have been able to resolve this claim,” KPMG’s UK chief executive Jon Holt said in a statement. “Carillion was an extreme and serious corporate failure, and it is important that we all learn the lessons from its collapse.”
One of the biggest corporate failures in the UK in recent memory was the demise of Carillion. In January 2018, the outsourcer went bankrupt with £7 billion in debt, which led to the loss of 3,000 jobs and chaos at hundreds of its public sector projects, including schools, roads, prisons, and even Liverpool FC’s stadium, Anfield.
It also caused a delay in the building of two new hospitals, the 669-bed Midland Metropolitan and the 646-bed Royal Liverpool, both of which were scheduled to open in Sandwell, West Midlands, in 2017 and 2018, respectively. As a result, the projects ran hundreds of millions of pounds over budget.
KPMG has already received a number of reprimands and financial penalties for allegedly failing to identify discrepancies in Carillion’s financial statements. However, the firm has also come under heavy fire for the caliber of audits performed across the UK.
After former employees were accused of falsifying documents and deceiving the regulator regarding audits for businesses including Carillion, KPMG reached a £14.4 million settlement with the accounting regulator, the Financial Reporting Council (FRC), in May of last year.
The fine, which was issued to Deloitte in 2020 for its previous audits of the software company Autonomy, was the second-largest fine ever levied against a UK auditor, coming in at £15 million.
It followed the tribunal’s affirmation of claims that KPMG and former employees had fabricated meeting minutes and altered spreadsheets in the past before sharing them with the FRC.
Regarding the audit and preparation of Carillion’s 2016 financial statements, the FRC is still looking into KPMG and former directors of the company.
On February 17, 2023, the headline of this article was changed to make it clear that KPMG settled a $1.3 billion lawsuit, not that it paid $1.3 billion in settlement. Unknown is the settlement’s dollar amount.
(Adapted from TheGuardian.com)