Auditor insists £1.3bn claim brought by Official Receiver on behalf of creditors ‘without merit’

Auditor KPMG misstated the value of two building contracts by £352m, Carillion’s liquidator has claimed in documents filed as part of an ongoing £1.3bn claim on behalf of the doomed contractor’s creditors.

Carillion was the UK’s second biggest contractor, working on 420 public sector contracts when it collapsed nearly five years ago leaving £7bn of debts.

The role of KPMG in its implosion has since come under particular scrutiny, with the Financial Reporting Council slapping four former auditors at the firm with huge fines and bans from the Institute of Chartered Accountants.

richard howson at Carillion inquiry

Richard Howson, pictured in 2018 giving evidence to MPs in the wake of Carillion’s collapse nearly five years ago, was chief executive of the firm at the time it sank

The Official Receiver, acting as liquidator for Carillion, filed an audit negligence claim in February this year with KPMG then filing its defence in July.

On Friday, the Official Receiver filed its reply, claiming that KPMG had “failed to respond to material aspects of Carillion’s case”.

It says KPMG’s defence did not address allegations that it failed to properly audit the accounting of 20 “significant” contracts including its job at Battersea Power Station, where it worked on the first phase of the scheme, and the Msheireb Downtown Doha scheme, a new city being built in Qatar.

Giving evidence to a House of Commons select committee in February 2018 into Carillion’s collapse the month before, former chief executive Richard Howson said he had visited the project in Qatar at least 60 times in the past six years in order to collect cash. “I felt like a bailiff,” he added. 

In the year ending 2016, the value of the Battersea and Doha contracts was misstated by £351m, the liquidator said. At the select committee hearing in February 2018, Howson publicly admitted the firm was owed £200m on the scheme in Qatar.

“Had KPMG acted as a reasonably competent auditor, it would have detected these misstatements,” a Carillion spokesperson said.

KPMG has alleged that the true position on these contracts was deliberately concealed from it, a claim that Carillion said was not supported by evidence.

The liquidator said in its reply that this would have “required all relevant personnel in the project teams, business units and senior management to engage in a widespread and concerted fraud on the Group’s auditors, which they would not have done,” adding that, in any case, “a reasonably competent auditor” would not have allowed the subject of an audit to withhold relevant documents.

A KPMG UK spokesperson told Building: “We believe this claim is without merit and we will robustly defend the case.

“Responsibility for the failure of Carillion lies solely with the company’s board and management, who set the strategy and ran the business.”