Carillion: KPMG hit with £1.3bn government lawsuit over audit

The government is suing accountancy firm KPMG for £1.3bn over its audit of construction giant Carillion, which collapsed into administration in 2018.

The Official Receiver, which is handling the liquidation of the former government contractor, alleges KPMG failed to spot misstatements in Carillion's accounts.

Carillion had run up debts of more than £7bn when it went bust.

KPMG said the Official Receiver's claim was "without merit".

Describing itself as an "integrated support services business", Carillion held about 450 governmental contracts, spanning the UK education, justice, defence and transport ministries.

But it ran into trouble after losing money on big contracts.

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The lawsuit against KPMG will claim damages of more than £1bn, which includes the sums Carillion paid out in dividends to its shareholders, advisory fees and losses encountered as the group continued to trade.

The negligence claim against KPMG for its alleged role in Carillion's collapse was filed in London's High Court in January, according to court documents released on Thursday.

KPMG was Carillion's auditor for 19 years, earning a total of about £29m for its audit work.

'Red flags'

The lawsuit focuses on the value of major long-term construction contracts, which the Official Receiver claims were not properly accounted for in 2014, 2015 or 2016, resulting in misstatements of more than £800m on Carillion's books.

They include projects such as the Royal Liverpool Hospital, the Southmead Hospital redevelopment, the Aberdeen ring road and work at Gatwick and Stansted airports.

It will allege that KPMG failed to respond to multiple "red flags".

A spokesperson for the Official Receiver, which also acts on behalf of Carillion's creditors, said that it had taken the action in the interest of those "who lost substantially in the liquidation".

"The decision is based on legal advice, which is that KPMG is answerable to Carillion's creditors for losses that have been caused," it said.

KPMG said: "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."