A KPMG partner and colleagues were motivated to forge documents and mislead regulators because they wanted to avoid criticism over their audit of Carillion as the outsourcer’s finances deteriorated, the UK accounting watchdog told a tribunal.
The allegations were made at an industry tribunal where the Big Four accounting firm tried to distance itself from the actions of its former staff and argued that there was “no systemic problem” at the firm, which has been fined £27m in the UK in the past three years.
The Financial Reporting Council has accused KPMG and six of its former auditors of creating “forged” spreadsheets, meeting minutes and other documents in response to questions from quality inspectors in 2015 and 2017.
The auditors then passed off the “fabricated” documents as if they had been created contemporaneously during their audits of Carillion and another outsourcer Regenersis, the FRC claimed.
On the second day of a five-week hearing, KPMG’s barrister James Brocklebank QC said the auditors had misled regulators. The audit group accepted vicarious liability for their actions but the individuals’ alleged dishonesty should not be imputed to the firm, he said.
KPMG took aim at its former auditors, saying that “no ethical training was required to tell staff not to lie . . . not to mislead the regulator and not to fabricate audit documents”.
Brocklebank said: “What went wrong, if indeed . . . things did go wrong, was the product of individual conduct . . . There was no systemic problem.”
Lawyers for the FRC focused on the auditors’ motives for the alleged dishonest creation of documents that would “paint a flattering picture” of their work.
An £845m provision in the accounts of Carillion in July 2017 and the “parlous” state of its finances meant Peter Meehan, lead partner on the outsourcer’s audit, had a “reputational and financial incentive, potentially, to avoid or mitigate criticism . . . for the Carillion audit”, they said.
Audit-quality grading was a factor in evaluating partner performance and potentially affected their pay, they added.
Auditors reporting to Meehan — Alistair Wright, Adam Bennett, Richard Kitchen and Pratik Paw — also had potential motives to avoid criticism and advance their careers, the watchdog argued.
Ian Croxford QC for Meehan on Tuesday said the former partner “felt let down” by his juniors in whom he reasonably “placed trust and confidence”.
Meehan “could not have been involved” in preparing forged documents on the Carillion audits because he was out of the office at the time, including a shopping trip with his wife, he said.
If people had to second-guess juniors “in some sort of Stasi fashion . . . then economic commercial life would not function”, he said.
But David Turner QC for Wright said this painted Meehan as a “caricature of a 1950s hospital consultant who arrives from on high into the ward as the minions scurry around and disappears”.
Fionn Pilbrow QC for Kitchen said that unlike Wright and Bennett, his client was not on the “fast track” to becoming partner and had already decided to leave KPMG so had no motive to mislead the regulator.
Meehan, Bennett, Kitchen and Paw deny wrongdoing. Wright’s lawyer said he accepted that his conduct “crossed the line into dishonesty” but he still denied some of the allegations. The sixth auditor, Stuart Smith, settled at the weekend.
The hearing continues.
KPMG auditors forged documents to avoid criticism, tribunal heard
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