RegulationJan 22 2019

Watchdog widens probe into Carillion audit

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Watchdog widens probe into Carillion audit

The UK auditing watchdog has opened a second investigation into KPMG and the services it provided to collapsed outsourcing giant Carillion.

Carillion, one of the UK government's biggest contractors, went into liquidation a year ago and its 13 final salary pension schemes went into the Pension Protection Fund.

The Financial Reporting Council has been investigating KPMG's audits of Carillion over the period between 2014 and 2017, and the conduct of two former finance directors, Richard Adam and Zafar Khan, since January 2018.

But it emerged today that the FRC opened another investigation in November into the provision of material to the watchdog by KPMG in connection with the original probe.

In a statement, the FRC said the matter came to light after KPMG itself had made the watchdog aware of this.

The FRC said: "The FRC continues to progress its original investigations in relation to the collapse of Carillion in conjunction with other regulators.

"A key area of focus has been the financial performance of Carillion's major contracts in both the construction and services divisions, and whether Carillion management and its auditors ensured that this was appropriately reported in its financial statements.

"The investigations are also considering conduct relating to pension liabilities, goodwill, cash disclosures and going concern."

The FRC said it was analysing a "very significant" amount of information and its investigation was likely to continue "well into 2019".

Carillion's 13 final salary schemes had more than 28,500 members and a deficit of £587m at the end of July 2017.

Chairman of the Work and Pensions committee, Frank Field, said: "That there has been egregious wrongdoing at every stop on this gravy train is, sadly, no longer news.

"So back to the real story - where are the law changes that will stop these directors and their merry bands of advisers, auditors and hangers on richly lining their own pockets at a cost of billions: in lost jobs, in decimated pensions, in ruined small businesses and stalled public services?

"We know what went wrong. We have known it, and been saying it, for years. When are the Government and the regulators going to put it right?"

In the aftermath of the company's collapse, documents released by Parliament revealed a Carillion director thought funding the company's defined benefit pension schemes was a "waste of money".

The Big Four auditor firms - KPMG, EY, PwC and Deloitte – meanwhile billed Carillion, pension schemes and the government £71m in relation to their work with the collapsed contractor during the last 10 years.

damian.fantato@ft.com