A worker operates a crane on Carillion's Midland Metropolitan Hospital construction site in Smethwick, Britain, on Jan. 29, 2018.Darren Staples/Reuters
British MPs are demanding that competition authorities launch a probe of the the country’s big four accountancy firms -- including the possibility of break-up -- following the collapse of construction firm Carillion, the Financial Times reports.
The recommendation was contained in a 101-page report on the collapse of Carillion.
Deloitte was Carillion’s internal auditor, but the other three major accounting firms did work for the failed government contractor, the second largest construction firm in the United Kingdom, the FT said.
The report called on the British government to refer KPMG, EY, PwC and Deloitte to the Competition and Markets Authority for potential break-up, or splitting the firms’ audit functions from non-audit services, according to the newspaper.
The report called on the government to refer KPMG, EY, PwC and Deloitte to the Competition and Markets Authority for potential break-up, or splitting the firms’ audit functions from non-audit services.
Carillion, which employed 43,000 people to provide services in defence, education, health and transport, collapsed in January, becoming the largest construction bankruptcy in British history. It left creditors and the firm’s pensioners facing steep losses and put thousands of jobs at risk.
Executives were more concerned with protecting bonuses than finding problems at the firm and presided over a “rotten corporate culture” that led to its costly demise, an investigation by two parliamentary committees found.
The failure of Carillion was a story of “recklessness, hubris and greed” and could happen again, the report by the Work and Pensions committee and the Business, Energy and Industrial Strategy select committee.
“Same old story. Same old greed. A board of directors too busy stuffing their mouths with gold to show any concern for the welfare of their workforce or their pensioners,” said Frank Field, who chairs the Work and Pensions select committee.
“British industry is too important to be left in the hands of the likes of the shysters at the top of Carillion,” he added.
The Insolvency Service, which is carrying out an investigation into potential misconduct by former directors at Carillion, should carefully consider whether the executives should be banned, the report said.
Former finance director, Richard Adam, was the architect of Carillion’s aggressive accounting policies and refused to make adequate contributions to the company’s pension scheme, which he considered a “waste of money”, the report said.
Carillion misrepresented its accounts, for example, by leaning on small suppliers to delay receiving payment in an attempt to conceal the true scale of its debts, the report said.
The company kept some companies waiting to be paid for 120 days unless, in exchange for more prompt payments, the companies would accept a discount on their invoices, the report said.
This meant Carillion was effectively able to keep more cash on its books by holding on to money owed to suppliers.
Adam’s decision to sell almost 800,000 pounds ($1.08-million) of shares after he retired last year, a few months before Carillion collapsed, were “the actions of a man who knew where the company was heading”, the report said.
In a statement, Adam rejected the committee’s conclusions, said the reasons for Carillion’s collapse were complex and said the authors of the report wrongly attributed quotes to him.
The report said the government should also ask the competition commission to investigate the break-up of Britain’s big four accountancy firms after a series of scandals that accountants appear to have missed.
The aim would be to increase competition and eliminate conflicts of interest arising from the dominance of the largest accountancy firms.
The government needs to do more to tackle the regulatory and legal environment that allowed Carillion to become a “giant and unsustainable corporate time bomb”, the report said.
“Carillion was unsustainable,” it added. “The mystery is not that it collapsed, but that it lasted so long. Carillion could happen again, and soon.”