Banking

ALEX BRUMMER: KPMG scandal is blow to clean capitalism

Blow to clean capitalism: The audit failures at KPMG read like a Who’s Who of business, says ALEX BRUMMER


The audit and governance failures at Big Four company KPMG read like a Who’s Who of business.

KPMG was deeply embroiled in the financial crisis through the flawed audits at HBOS and Co-op Bank. Its work is under heavy scrutiny at Silentnight, M&C Saatchi, Ted Baker and Carillion.

In the early Noughties Arthur Andersen closed up shop for less after the Enron scandal. The denizens of Peat Marwick (the PM in KPMG), who long provided services to the Royal family, will not be amused.

KPMG was deeply embroiled in the financial crisis through the flawed audits at HBOS and Co-op Bank. Its work is under heavy scrutiny at Silentnight, M&C Saatchi, Ted Baker and Carillion

None of this, nor the moronic ‘stop moaning’ comments of KPMG’s former chairman Bill Michael in the midst of Covid, prevented 582 partners at the firm waltzing off with an average payout of £572,000 last year. Michael was awarded £1.7million.

The only possible defence for the KPMG audit partners for their blunders is that they will only ever be as good as the poor data provided and directors seeking to window-dress financial performance.

But there can be no excuses made for the latest allegations brought by regulator the Financial Reporting Council (FRC).

It charges KPMG and the partners responsible for audits at collapsed construction group Carillion and software outfit Regeneris with providing ‘false and misleading’ data to the FRC during regular inspections.

That reeks of an attempt to cover up the facts and comes in addition to the ongoing probe into the events leading to the crash of Carillion in 2018.

It is splendid that the FRC is taking a tough stand against KPMG and partners involved – Peter Meehan at Carillion and Stuart Smith at Regenersis. 

Nevertheless, it is a sharp reminder of the increasing distrust of the reliability of audit and weakness at the regulator. It is extraordinary that investigations into the audits of the 2016 Carillion financial statements are still going on five years after the event.

The bigger issue is the failure of the Government to legislate for reform of accounting and the creation of a new all-powerful watchdog the Audit, Reporting and Governance Authority (ARGA).

The delays in restructuring supervision, the lack of competition in accounting and the way audit reports are presented are a blight on clean capitalism.

Victims of poor practice and flaccid regulation continue to pile up – the implosion at Neil Woodford’s investment empire, the collapse of finance group Greensill and ramshackle bean-counting at Liberty Steel are all examples.

The long delay in the new legislation is unconscionable and dangerous.

Poison Pill

Huw Pill looks well qualified to be the next chief economist at the Bank of England.

The choice is, however, utterly predictable. The Bank lacks women and diversity at the highest level yet another man in a critical role shows lack of imagination.

As disheartening is Pill’s background as chief economist at Goldman Sachs, the spiritual home of the last Governor, Mark Carney, and the current deputy governor for monetary policy, Ben Broadbent.

It may be that Pill will surprise everyone with radical, offbeat views in the manner of predecessor Andy Haldane. But with his background at Goldman, the European Central Bank and, currently, at Harvard there is no reason to expect fireworks.

The selection of chief economist was a matter for the Bank and as is too often the case, groupthink was the driving force.

None of this justifies the raw reaction from the economic Twitterati. Former Monetary Policy Committee member Andrew Sentance describes Pill as ‘part of the Goldman Sachs/Central banking mafia driving monetary policy.’ 

Former MPC member Danny Blanchflower challenges Pill’s lack of publications in the last decade, despite a Harvard entry which covers a couple of pages.

Maybe he is the right person after all.

Promise land

There has been little sign that ‘Sir Sell-off’ Nigel Rudd or key shareholders will be willing to resist the £6.3billion bid for Meggitt from rival engineer Parker-Hannifin.

If that is the case then there can be no excuses in Whitehall for failing to extract long-term, iron-clad commitments from the buyers on HQs, jobs, R&D budgets, pensions, domicile and national security.

The evisceration of Cobham by private equity outfit Advent shows how easily past undertakings have been circumvented by slippery buyers.

It should never happen again.

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