49
Glutton for
punishment
Serco’s
Rupert Soamespage 52
t
es
Carillion’s collapse was rapid, but there’s
no end in sight for inquiries into its cause
Bankruptcies happen gradually, then
suddenly, an Ernest Hemingway char-
acter famously deadpans in The Sun
Also Rises. Yet the aftermath of insol-
vency can play out painfully slowly, as
observers of Carillion’s collapse, four
years ago this week, can testify.
Carillion had its fi ngers in a lot of
pies, to the point where it is diffi cult
to explain what its main business
was: was it construction, or some-
thing woollier like “support services”?
Cleaning and maintenance are crucial
to almost any business, but they are
also shockingly easy to outsource to
complex and faceless conglomerates.
That complexity extended to accounts
built on the directors’ “ increasingly
fantastical fi gures ”. To borrow the
Queen’s question about the credit
crunch, why did nobody notice?
Carillion’s crash was so severe that
it has sparked years of navel-gazing
by accountants and their regulators.
The latest chapter will open tomor-
row , when a tribunal in London will
look at allegations that KPMG, a for-
mer partner at the auditor and certain
current and former employees issued
“false and misleading information
and/or documents” to the regula-
tor, the Financial Reporting Council
(FRC). KPMG declined to comment
before the tribunal.
KPMG self-reported the latest
problems, which relate to informa-
tion handed over during standard
FRC inspections of audits of Carillion
and Regenersis , a London-listed IT
company later renamed Blancco. The
regulator will not allege misconduct
in the audits, nor that the fi nancial
statements were imperfectly pre-
pared, but the tribunal will proba-
bly shine more unwelcome light on
a profession that has taken a beating
ever since the global fi nancial crisis.
The existence of a dominant “Big
Four” is not usually a good sign in any
industry. Safe to say that Deloitte, EY,
KPMG and PwC have all had their
scandals (try Autonomy, NMC Health,
Conviviality and BHS respectively )in recent years. Smaller hangers-on
such as Grant Thornton have also had
their moments (Patisserie Valerie and
Sports Direct).
The FRC and the broader audit pro-
fession have also been in the prover-
bial dock in recent years. At one point
there were no fewer than fi ve separate
“Whither auditing?” inquiries , and
the government is close to publishing
a set of reforms to audit and corporate
governance that it hopes will make it
much harder for balance-sheet black
holes to slip past auditors unnoticed.
The FRC will be replaced by a new
Audit, Reporting and Governance
Authority, probably in 2023.However, recent reports suggested
that business lobbyists had got
their claws into the reforms, water-
ing down some more controversial
elements in favour of a “business-
friendly” regime fi t for a wheeler-
dealer post-Brexit Britain. Gone,
according to the Financial Times, will
be proposals to make directors per-
sonally oversee fi nancial reporting
controls; this will be demoted instead
to the corporate governance code. The
code sets the standards, but compa-
nies can opt out as they see fi t.
There are other options for seeking
accountability. This week’s tribunal is
one of three investigations the FRC isstill running on the Carillion collapse- there is another into KPMG’s audit
itself, as well as one into the compa-
ny’s former directors. The govern-
ment’s Offi cial Receiver has fi led a
claim form suggesting that it could
seek damages of as much as £1bn
from KPMG for audit negligence.
(KPMG has promised to contest any
claim , though none has yet arrived.)
Yet industry sources suggest that
readers don’t hold their breath for a
payout on that scale. The Carillion
fallout keeps coming – but we will
have to wait even longer for answers
on why it happened, and how we can
avoid a repeat.
The auditing sector
took a battering after
the 2018 insolvency,
and it may continue
at a tribunal this
week, says Jasper Jolly
Agenda
Postscript Vital statistics
Elizabeth Holmes, founder of
Theranos, was found guilty of four
of 11 charges of fraud, concluding
a high-profi le trial that captivated
Silicon Valley and chronicled the
missteps of the now-defunct blood-
testing startup. The jury found
Holmes guilty of one count of con-
spiracy to defraud investors and
three counts of wire fraud. She is
expected to appeal.
Sony revealed plans to start an elec-
tric car company, making it the lat-
est electronics fi rm to target the
automotive sector. At the Consumer
Electronics Show in the US it pre-
sented a prototype sport utility vehi-
cle, the Vision S 02 , after beginning
testing on a coupe in December- Sony was the fi rst company to
commercialise the lithium-ion bat-
teries now used in electric cars.
UK house prices rose by 9.8% during
2021, the fastest rate since 2007 –
but the boom is predicted to end this
year as interest rates rise and house-
hold fi nances come under increas-
ing pressure, according to the lender
Halifax. The price of the average UK
home hit a record high of £276,091
in December, up more than £24,000
over the year – the biggest increase
in a calendar year since 2003.British Gas owner Centrica opposed
a bailout for energy companies, say-
ing the government should focus
on helping struggling customers
instead. The government has been
under pressure after 26 energy sup-
pliers collapsed in fi ve months. Greg
Jackson of Octopus Energy argued
for a £20bn loan scheme, which
suppliers could use to avoid hitting
customers with sudden increases.Theranos founder
convicted of fraud
Sony unveils bid to
make electric cars
House prices rose
almost 10% in 2021
British Gas owner
criticises bailout plan
$3tn
Market value briefl y attained last
week by Apple, the fi rst company
to do so.4 days
Time it takes for a FTSE 100 boss
to earn more than the average
annual salary, according to the
High Pay Centre.Carillion was
involved in the
construction
industry, but
also in the rather
woollier ‘support
services’ sector.
Daniel Sorabji/
Getty