Auditors grilled over collapse
Carillion annual reports ‘worthless’, say MPs
Auditors signed off Carillion accounts months after work halted on a hospital
Auditors who signed off the figures of the collapsed Carillion construction company were today told its annual reports were “worthless” and there serious questions about its governance.
KPMG, Deloitte and the Pensions Regulator, faced a grilling from MPs on Thursday over their role in Carillion’s collapse.
Rachel Reeves, who chairs the Business Committee, said the company’s annual reports were “worthless as a guide to the true financial health of the company”.
She said: “The fact is that it was impossible to get a true sense of the assets, liabilities and cash generation of the business raises serious questions about Carillion’s corporate governance.”
Deloitte conducted Carillion’s internal audit, while KPMG was responsible for the external audit which came just months before big holes in the company’s balance sheet were revealed.
Michael Jones of Deloitte told the MPs that he did not attend a meeting of the company’s audit committee when an £845 million writedown was agreed. He said that missing meetings was not unusual and stating that he “would not have added any value” by being present.
Ms Reeves responded: “It might not be unusual, but I find it quite surprising.”
Frank Field, chairman of the Work and Pensions Committee, which is jointly investigating Carillion’s failure, said it was “extraordinary” that Mr Jones did not attend.
Peter Meehan, an audit partner at KPMG was asked why problems at Carillion had not been spotted earlier.
He told MPs that is was clear the company was running a low margin business, had a high level of debt, and was dealing with a widening pension deficit.
He said: “People knew it had challenges, but the company also had the reserves to deal with those challenges.”
The auditors told MPs that Carillion’s executives were wrong to claim that late-payments on a Qatari contract were the reason for the contractor’s demise.
Mr Meehan said he went on 30 site visits in Qatar, and did presentations highlighting the risks from the contract. But Mr Field said that despite the site visits, KPMG “didn’t really spot anything”.
Mr Meehan said: “I’m very sorry for what’s happened to the families of the employees who lost their jobs and subcontractors and shareholders. But my role is to be the auditor – not in the choosing of management.
“Independence doesn’t allow me to make decisions on behalf of the company.”
Lesley Titcomb, chief executive of the Pensions Regulator, was asked why it had not used its powers to force the company into paying down its deficit.
She said that with hindsight the regulator would have used its powers more quickly to ensure the company increased its payments into the pension scheme.
Earlier, the Work and Pensions Committee said cracks in a number of beams during construction of the Royal Liverpool Hospital were discovered nine months before a write down in July 2017.
The cracks added over £20 million to the cost of completing the project.
Work was halted on the hospital in November 2016 and reported in local papers in December 2016.
KPMG signed the company off as a “going concern” the following spring on the basis of the 2016 accounts, four months before the company announced an £845m provision.
This brought the crisis at the company into public view. Carillion subsequently plunged into insolvency with billions of unpayable debt and £2.3 billion in pension liabilities months later.
KPMG is also facing an investigation by the Financial Reporting Council over its role.