Carillion: Former FD warned the board about "sloppy accounting"
Carillion’s last finance director blew the whistle on accounting irregularities at Carillion as early as May 2017, more than three months before the firm’s troubles were made public.
Emma Mercer was just six weeks into her role as the FD of construction services in the UK when she identified issues with the company’s accounts. Mercer’s concerns, by all indications, were waved away by Carillion’s CEO Richard Howson, CFO Zafar Khan and and the board.
Mercer identified serious issues with the accounting on major Carillion projects. Those projects included the redevelopment of Battersea power station in London and the construction of the new Royal Liverpool hospital. Specifically, she identified Carillion allegedly using refunds it expected to receive from subcontractors to lower the debt in its annual accounts.
According to board minutes published by the Work and Pensions and Business Select Committees, Carillion’s non-executive director Alison Horner acknowledged Mercer, referring to her as “a whistleblower who did not feel she was listened to”.
Frank Field, chair of the work and pensions committee, said Mercer’s whistleblowing illustrated a culture of denial within Carillion’s management. “While our witnesses have been reticent in oral testimony, these minutes begin to reveal the true picture of a company falling apart at the seams in full view of the board and their auditors.
“Emma Mercer took just six weeks to spot and pull the thread that began the entire company unravelling. That the next Chief Financial Officer had to go through whistle blowing procedures to get her concerns about accounting irregularities taken seriously by the Carillion board is extraordinary. So too is that the board’s response was to reject an independent review and get KPMG, their pet rubber-stampers, to mark their own homework.”
For KPMG, Carillion’s auditors, Mercer’s revelations raises yet more questions around the efficacy of their audit. Mercer's findings triggered a review of contracts and the board committed to an independent review into why the “sloppy accounting” wasn’t not spotted by KPMG, but ultimately decided against it.
After investigating the errors, the KPMG partner Peter Meehan is quoted in the minutes as saying Carillion’s financial results did not need to be restated and that “he did not believe that there was an intent to deceive” but rather that it was due to “incompetence, negligence or sloppy accounting”.
The board minutes puncture the narrative of Carillion’s management that they couldn’t have foreseen the collapse. “These board minutes point to a very different scenario,” said Rachel Reeves, chair of the Business, Energy and Industrial Strategy Select Committee. “Emma Mercer was sounding the alarm but none of the Carillion directors were willing to wake up and listen.”