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Tabby Kinder at The Financial Times reports that the UK agency tasked with unwinding Carillion is preparing to sue KPMG for GBP250 million over alleged negligence in its audits of the outsourcing group that collapsed in 2018.
The significant claim will be the latest blow to the Big Four accounting firm, which is also under investigation by regulators for its work on Carillion, the FT notes.
According to the FT, the official receiver, a civil servant employed by the Insolvency Service to liquidate Carillion, has claimed in legal documents that the outsourcer’s board of directors believed the business was “profitable and sustainable” as a result of KPMG’s clean audit opinions. It said the unqualified audits led the directors to pay out almost GBP250 million in dividends and advisory fees over two years, the FT relays.
The claim was made public on May 12 as part of a court application brought by the official receiver in an attempt to access key KPMG audit documents, the FT recounts. KPMG has rejected the application for the documents, the FT states.
A court filing by lawyers for the official receiver said KPMG’s audit files would be core evidence in any future case, according to the FT.
Carillion, which employed about 19,000 people in the UK and had major government contracts including for the construction of the HS2 rail line, issued a profit warning four months after KPMG signed off on its accounts in 2017, the FT recounts. It collapsed five months later, in January 2018, the FT notes. The outsourcing group owed more than GBP1.3 billion to its banks and had a pension deficit of about GBP800 million, while having just GBP29 million in cash, the FT discloses.
The bankruptcy process is expected to cost the taxpayer about GBP148 million, including a GBP50 million payment to PwC, which has been appointed by the official receiver as the special manager to the liquidation, the FT says.