A KPMG partner and colleagues were motivated to falsify documents and mislead regulators because they wanted to avoid criticism of their audit of Carillion as the outsourcer’s finances deteriorated, the British accounting watchdog told a tribunal.
The allegations were made at a industrial tribunal where the Big Four accounting firm tried to distance itself from the actions of its former staff, arguing that there was “no systemic problem” with the firm, which has been fined £ 27 million in the UK over the past three years.
The Financial Reporting Board has accused KPMG and six of its former auditors of creating “fake” spreadsheets, meeting minutes and other documents in response to questions from quality inspectors in 2015 and 2017.
The auditors then passed on the “manufactured” documents as if they had been created simultaneously during their audits of Carillion and another outsourcer Regenersis, the FRC claimed.
On the second day of a five-week trial, KPMG’s lawyer James Brocklebank QC said the auditors had misled regulators. The audit group has accepted substitute liability for their actions, but the individuals’ alleged dishonesty should not be attributed to the firm, he said.
KPMG targeted its former auditors, saying “no ethical training is needed to tell staff not to lie. . . not to mislead the regulator and not to fabricate audit documents ”.
Brocklebank said: “What went wrong, if at all. . . things went wrong were the product of individual behavior. . . There was no systemic problem. “
Attorneys for the FRC focused on the auditors’ motives for the alleged dishonest creation of documents that would paint “a flattering picture” of their work.
A provision of £ 845 million in Carillion’s accounts in July 2017 and the “poor” state of its finances means Peter Meehan, main partner on the outsourcer’s audit, had a “reputation and financial incentive, possibly to avoid or mitigate criticism. . . for the Carillion audit, ”they said.
Audit quality rating was a factor in evaluating partner performance and may have 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 said on Tuesday that the former partner had been “let down” by his juniors in whom he had reasonably “placed trust and confidence”.
Meehan “could not have been involved” in the preparation of forged documents about the Carillion audits because he was then out of the office, including a shopping spree with his wife, he said.
If people juniors had to guess “in some Stasi way. . . then the economic commercial life will not function ”, he said.
But David Turner QC for Wright said it paints Meehan as a “caricature of a 1950s hospital consultant arriving from the top of the ward while the followers scurry around and disappear”.
Fionn Pilbrow QC for Kitchen said unlike Wright and Bennett, his client was not on the “fast track” to becoming a partner and had already decided to leave KPMG, and therefore had no motive to mislead the regulator .
Meehan, Bennett, Kitchen and Paw deny injustice. Wright’s lawyer said he accepted that his behavior had “crossed the line into dishonesty”, but still denied some of the allegations. The sixth auditor, Stuart Smith, settled the weekend.
The trial continues.