COMMONS

Carillion: Pensions regulator and auditors questioned on collapse

22 February 2018

The Work and Pensions and Business, Energy and Industrial Strategy Committees hold the third session in their joint inquiry into Carillion, which finally collapsed on January 15 2018 with the firm owing financial creditors well over £1 billion, a further £2bn to suppliers, and carrying an eye-watering £2.3bn pensions liability: just months after being signed off as a going concern by auditors KPMG.

Auditors didn't see warning signs

They will be questioned in this session, along with internal auditors Deloitte, and The Pensions Regulator.  The Committee has a growing pile of evidence that those involved with Carillion in a variety of ways –  as major investors, as pension covenant assessors, as hedge funds playing Carillion stocks on the markets - some with access to the accounts, some without, saw warnings of its demise: so why didn’t the auditors? How did KPMG sign off accounts that had £845 million written off their value four months later?

Serious questions about Carillion's corporate governance

Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy (BEIS) Committee, said:

"Investors spotted that Carillion was heading for disaster and fled. The company had unsustainably high levels of debt, weak cash-generation and was saddled with a widening pensions deficit.

Carillion's annual reports were worthless as a guide to the true financial health of the company. The fact that it was impossible to get a true sense of the assets, liabilities and cash generation of the business raises serious questions about Carillion's corporate governance.

KMPG will have to explain why they signed-off on accounts which appear to have borne so little relation to reality."

Pension contribution 'holiday'

TPR approved the pension contribution "holiday" that was the banks' condition for granting Carillion a further, huge tranche of borrowing, ostensibly to save the company: it nonetheless crashed into liquidation months later, pushing 11 of the 13 Carillion pension schemes into the PPF as an inevitable consequence.  

Correspondence published on Tuesday by the Committees shows the main pension schemes' trustees asked TPR to intervene in 2010 and again in 2013, having repeatedly failed to secure the level of contributions they believed were necessary, or to agree a deficit recovery plan.

TPR finally launched an "anti-avoidance" investigation three days after the firm went bust,  or as Frank Field, Chair of the Work and Pensions Committee, put it: “started its arduous process of chasing money down from Carillion a few days after it was formally announced there was no money left".

Witnesses

Thursday 22 February, the Wilson Room, Portcullis House 

At 09.15am 

  •  Lesley Titcomb, Chief Executive, TPR
  • Nicola Parish, Executive Director of Frontline Regulation, TPR
  • Mike Birch, Director of Case Management, TPR

At approximately 10:15

  • Michael Jones, Internal Audit Partner, Deloitte
  • Michelle Hinchliffe, Head of Audit, KPMG
  • Peter Meehan, Partner, Audit, KPMG

Further information

Image: iStockphoto

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