The Financial Reporting Council has issued a formal complaint against KPMG and several of its current and former employees for allegedly providing “false and misleading information” relating to its audits of the outsourcing firms Carillion and Regenersis.
The accounting watchdog’s allegations of misconduct relate to documents provided to the FRC during its inspection of audits carried out on Carillion in 2016 and Regenersis in 2014.
Carillion was one of the UK’s biggest construction contractors before it buckled under the pressure of £7bn of debt in January 2018, plunging 3,000 jobs into uncertainty and threatening more than 450 major public-sector projects, including the construction of new hospitals.
The FRC opened its investigation in November 2018 dopo KPMG self-reported concerns relating to its 2016 review of the Carillion audit. The FRC later widened the scope to include the inspection of KPMG’s 2014 audit of Regenersis, which provides data erasure services to the IT industry.
The FRC complaint has emerged months after the government’s Insolvency Service, which was appointed as Carillion’s liquidator, began pursuing a legal claim against the accountancy firm for up to £250m.
Lawyers for the official receiver, part of the government’s Insolvency Service, reportedly sent a letter before action to KPMG in June that warned it to expect a claim related to Carillion’s collapse.
The letter is expected to be a precursor to a lawsuit alleging that KPMG did not examine Carillion’s accounts properly and failed to spot the early signs of financial faultlines in the company.
The FRC delivered its formal complaint to Peter Meehan, KPMG’s engagement partner for the Carillion audit, and Stuart Smith, the KPMG engagement partner for the Regenersis audit.
The FRC said the complaint did not allege that Meehan was responsible for misconduct relating to the Regenersis audit, or that Smith was responsible for misconduct relating to the Carillion audit.
A KPMG UK spokesperson said: “We take this matter extremely seriously. We discovered the alleged issues in 2018 e 2019 and on both occasions immediately reported them to the FRC and suspended the small number of people involved.
“The allegations in the formal complaint would, if proven, represent very serious breaches of our processes and values. We have cooperated fully with our regulator throughout their investigation.”
Regenersis did not immediately respond to a request for comment.