The Carillion debacle
The Collapse of Carillion is bad news for everybody apart from the liquidators, and even they may not be getting rich on the back of this one. It also has the potential to show the profession up in an embarrassingly bad light.
We all remember financial catastrophes from the past, including the banking crisis and the collapse of Enron. In the latter case, not only did a corporate giant go down but it took dear old Andersen’s with it.
This time around, after no fewer than three profit warnings, the government or its representatives continue to give valuable contracts to a company that was clearly on the brink of collapse. You can get away with this kind of thing if a miracle occurs, but in this case the inevitable happened.
According to press reports, KPMG are already under fire as auditors of the company, while almost exactly six months ago, EY were hired to review the company’s finances.
Members of the public, the House of Commons Public Accounts Committee, and quite possibly the profession, will all be asking why two of the most esteemed firms of accountants in the world did not manage to identify this impending disaster. If there are only called in at a relatively late stage, I can fully understand why they may not have been able to prevent it but once again, prima facie this does not look good.
Going beyond the external auditors, a company of this size ie one that managed to get £1.5bn into debt, must also have had more than its fair share of accountants on the inside and you have to wonder what they were doing. Probably panicking and bailing like mad.
I am also baffled as to how a company that appeared to be raking in cash from joint ventures with the government could manage to mess up its finances in quite such epic fashion. You would have thought that this was a licence to print money and yet that has not happened.
The consequence is that a large number of government projects will probably be delayed or abandoned, numerous people will lose their livelihoods, directors their bonuses and, despite some kind of public review, I would be willing to bet my shareholding in Carillion that no lessons will be learned.
To me, this is the worst issue. I can understand people making mistakes, even of this magnitude. However, we seem to be completely unable to learn the lessons from almost identical situations that happen on a relatively regular cycle.
Governments typically blame their predecessors, although having been in office for so long, you would think that it will be very hard for ministers to point the finger at the last Labour government. Even so, that is a virtual certainty, since admitting your own mistakes is not something that politicians have been trained to do.
In terms of the profession, there must be questions to be asked about the quality of auditing and financial reviewing in a situation where alarm bells must have been ringing over several years. Indeed, when rats leave sinking ships and hedge funds start selling shares short, you might have thought that auditors would take drastic action. There were further indicators as demonstrated in a Guardian article yesterday.
I fear that the media will be sharing tales of woe about this one for months or even years to come.