ICAEW banks KPMG’s Carillion £14.4m fineby
ICAEW is under renewed scrutiny for keeping the £14.4m fine levied on KPMG for falsifying Carillion audit documents, rather than the proceeds going to the creditors of the failed outsourcing company.
The Institute of Chartered Accountants in England and Wales (ICAEW) is once again facing a barrage of criticism after it was confirmed this week that KPMG’s £14.4m Carillion audit fine will be paid to ICAEW because the regulatory action fell within the accountancy scheme, which was introduced in 2004.
As KPMG tries to repair its damaged reputation, politicians and ICAEW’s own members are questioning why the professional body is retaining all of the fines.
However, ICAEW can lay claim to the fines because, under the funding arrangements, professional bodies pick up the cost of investigations by the Financial Reporting Council (FRC) in advance.
In return professional bodies get the money from any fines, rather than that pot of money being used as compensation. Alternatively, though, when a case is brought to tribunal by the regulator and there isn’t a fine, the professional body bears the cost instead. ICAEW also points out that even where fines have been imposed, some cost orders do not fully reimbuse professional bodies for the whole costs of the investigation.
The institute also stresses that the money received from fines is not used to offset ICAEW’s operational expenditure but is “allocated to our strategic reserves and it supports our wider commitment to serve the public interest, as required by the terms of our Royal Charter”.
While ICAEW has retained the costs, as it was legally entitled to, the move has roused similar criticism that was aimed at the institute when it received the KPMG’s Silentnight £13m fine, rather than the pension holders who were set to lose around 30% of their pot due to the mattress company falling into insolvency. That incident prompted The Times’s columnist Patrick Hosking to fume, “the more dishonesty and fraud discovered in the profession, the more profit the institute stands to make”.
The pressure on ICAEW comes as KPMG agreed to pay the fine, reduced from £20m, after a five-week trial found five former KPMG auditors guilty of forging documents.
KPMG has previously been accused of failing to maintain professional independence as the auditor of Carillion and missing multiple “red flags”. Creditors claim to have lost billions of pounds in dividends, advisory fees and losses as it continued to trade.
But the fine going to ICAEW has only reignited the condemnation previously heard during the Silentnight episode. Former pensions minister Baroness Altmann has added her voice to the calls for the money to go to the creditors and not ICAEW, saying: “Something has gone wrong here.”
Meanwhile, ICAEW members have also expressed concern over how the perception of the institute keeping the proceeds will tarnish the brand. Chartered accountant and ICAEW critic Ken Frost was particularly scathing. “I think it is shameful that my professional body seeks to profit from the wrongdoing of member firms,” said Frost. “It is, of course, quite correct that the ICAEW issued the fine. However, it is shameful that they have decided to ‘trouser it’ like a spiv City trader from the 80s.
“Additionally, it beggars belief that the ICAEW thinks that this won’t damage their brand!”
A different approach
The accountancy scheme is set to wind down soon as part of a government reform and the funding arrangements are also expected to switch to the government.
Despite the removal of the accountancy scheme, professional bodies must continue to fund investigations of all new complaints brought by the FRC under the audit enforcement procedure.
An ICAEW spokesperson said that the professional body would welcome the rationalisation of the “different schemes which now exist to pay for this aspect of the FRC’s regulatory work.”
They continued: “We do not believe that any of the professional bodies would object to being removed entirely from the funding process, with all fines in future going to HM Treasury. We would be happy to discuss this with BEIS [the Department for Business, Energy and Industrial Strategy], the FRC or – when it is eventually established – ARGA.”