Professional services firm KPMG has played a pivotal role making 2021-22 a record year in terms of the level of fines and sanctions issued by the Financial Reporting Council (FRC) to firms of accountants. Total fines for the year amounted to £46.5million, of which over half related to KPMG. Fines in the previous 12 months amounted to some £42m.
Lowlights of the 201-22 year include:
Fine £14.4m: how KPMG's auditors resorted to fraud to try and cover up their errors in the Regenersis and Carillion audits:
- Three KPMG auditors of Regenersis, KPMG director, Stuart Smith, senior manager, Alistair Wright and manager Adam Bennett were found guilty of misleading the FRC Audit Quality Review (AQR) inspectors.
- Carillion's audit partner Peter Meehan, together with Alistair Wright, senior manager Richard Kitchen, Adam Bennett and assistant manager Pratik Paw, created fake paper trails to mislead the inspectors.
- KPMG was fined £20 million, reduced by a sizeable discount to £14.4 million, to reflect KPMG’s self-reporting, co-operation and admissions with £3.95 million in costs. It was severely reprimanded and ordered to appoint an independent reviewer to conduct a review to consider the effectiveness of KPMG’s current AQR policies and procedures in supporting high-quality engagement with the AQR inspectors.
Peter Meehan was fined £250,000 and excluded from membership of the ICAEW for 10 years. Senior managers Alistair Wright and Adam Bennett were fined £45,000 and £40,000 and given eight-year exclusions. Richard Kitchen was fined £30,000 and excluded for seven years. Pratik Paw was severely reprimanded.
Stuart Smith, who was the only one prepared to admit to his wrongdoing and settled before the FRC hearing, was fined £150,000 and his membership of the ICAEW suspended for three years.
Fine £13m: how KPMG's corporate restructuring team asset stripped Silentnight to facilitate a cheap sale to the advantage of their hedge fund client.
- Apparently blind to the overwhelmingly obvious conflict of interest that befell him, insolvency expert David Costley-Wood, then Head of KPMG Manchester Restructuring, decided to steer the failing Silentnight business into a course of action to ditch its pension fund obligations. This was ultimately detrimental for the business's employees and provided a cheap deal for its pre-pack buyers (who were also his client).
- Found guilty of serious misconduct KPMG was fined £13m, David Costley-Wood was fined £500,000, lost his insolvency licence and was excluded from ICAEW membership for 13 years.
The ICAEW receives a share of fines levied against ICAEW firms as its income. This is something which may be viewed as unfair to the victims of the audit failures, whilst it is open to shareholders to bring a class action against auditors it is more difficult for other groups, for example, ex-employees to bring a claim.